-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A+ltSRtDV3kg1sk2LiQXnMHuicgxf3YGHvV5J9Qca64KqgJdNqG8sy1WXEPGJ8X4 qXQljmI83XbND8RUqXe/YQ== 0000889812-00-000931.txt : 20000224 0000889812-00-000931.hdr.sgml : 20000224 ACCESSION NUMBER: 0000889812-00-000931 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMCOR GROUP INC CENTRAL INDEX KEY: 0000105634 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL WORK [1731] IRS NUMBER: 112125338 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-02315 FILM NUMBER: 550957 BUSINESS ADDRESS: STREET 1: 101 MERRITT SEVEN CORPORATE PK STREET 2: 7TH FLOOR CITY: NORWALK STATE: CT ZIP: 06851 BUSINESS PHONE: 2038497800 MAIL ADDRESS: STREET 1: 101 MERRITT SEVEN CORPORATE PARK STREET 2: 7TH FLOOR CITY: NORWALK STATE: CT ZIP: 06851 FORMER COMPANY: FORMER CONFORMED NAME: JWP INC/DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: JAMAICA WATER PROPERTIES INC DATE OF NAME CHANGE: 19860518 FORMER COMPANY: FORMER CONFORMED NAME: WELSBACH CORP DATE OF NAME CHANGE: 19761119 10-K 1 ANNUAL REPORT FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 Commission file Number 0-2315 EMCOR GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 11-2125338 ---------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification number) 101 Merritt Seven Corporate Park 06851-1060 Norwalk, Connecticut ------------------- - ------------------------------------ (zip code) (Address of principal executive offices) ------------------------------------------------ Registrant's telephone number, including area code (203) 849-7800 Securities registered pursuant to section 12(b) of the act: None Securities registered pursuant to section 12(g) of the act: Common Stock, par value $.01 per share (Title of each class) ------------------------------------------------ Indicate by check mark whether the Registrant (1) Has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filings pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in Part III of this Form 10-K to be filed as an amendment hereto. | | Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes | | No |_| The aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant on December 31, 1999 was approximately $179,660,000. Number of shares of Common Stock outstanding as of the close of business on February 18, 2000: 10,427,682 shares. TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business General..................................................................................... 1 The Business................................................................................ 1 Competition................................................................................. 4 Employees................................................................................... 5 Backlog..................................................................................... 5 Item 2. Properties.................................................................................... 6 Item 3. Legal Proceedings............................................................................. 9 Item 4. Submission of Matters to a Vote of Security Holders........................................... 9 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 11 Item 6. Selected Financial Data....................................................................... 12 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition......... 13 Item 8. Financial Statements and Supplementary Data................................................... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 46 PART III Item 10. Directors and Executive Officers of the Registrant............................................ 46 Item 11. Executive Compensation........................................................................ 46 Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 46 Item 13. Certain Relationships and Related Transactions................................................ 46 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 47
PART I Item 1. Business General EMCOR Group, Inc. ("EMCOR") is the largest mechanical and electrical construction and facilities services firm in the United States and Canada and one of the largest in the United Kingdom and the world. In 1999 EMCOR had revenues of more than $2.89 billion. EMCOR provides services to a broad range of commercial, industrial, utility, and institutional customers through approximately 40 principal operating subsidiaries. Its subsidiaries have offices in 21 states and the District of Columbia in the United States, seven provinces in Canada and ten primary locations in the United Kingdom. In the United Arab Emirates, Saudi Arabia, Hong Kong and South Africa, EMCOR carries on business through subsidiaries and joint ventures. EMCOR's executive offices are located at 101 Merritt Seven Corporate Park, Norwalk, Connecticut 06851-1060, and its telephone number at those offices is (203) 849-7800. EMCOR specializes in the design, installation, integration, start-up, operation and maintenance of: o Distribution systems for electrical power; o Lighting systems; o Low-voltage systems, such as fire alarm, security, communications and process control systems; o Voice and data communications systems; o Heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems; and o Plumbing, process and high-purity piping systems. EMCOR also provides services needed to support the operation of customers' facilities, which services are not related to customers' construction programs. These services, frequently referred to as facilities services, include site based operations and maintenance, mobile maintenance and service, small modification and retrofit projects, consulting, program development and management for energy systems, and maintenance of facilities. Facilities services are provided to a wide range of commercial, industrial, utility and institutional facilities, including those at which EMCOR provided construction services and others at which construction services were provided by other contractors. EMCOR's varied facilities services are frequently combined to provide integrated service packages which include mechanical and electrical services. EMCOR provides mechanical and electrical construction services and facilities services directly to corporations, municipalities and other governmental entities, owners/developers and tenants of buildings. It also provides these services indirectly by acting as a subcontractor to construction managers, general contractors, systems suppliers and other subcontractors. Worldwide, EMCOR employs approximately 20,000 people. EMCOR's revenues are derived from many different customers in numerous industries with operations in several different geographical areas. Of EMCOR's 1999 revenues, approximately 74% was generated in the United States and approximately 26% was generated internationally. In 1999, approximately 46% of revenues was derived from new construction projects and approximately 54% of revenues was derived from renovation and retrofit of customers' existing facilities and from EMCOR's facilities services operations (renovation and retrofit work and facilities services operations are sometimes referred to by stock analysts as maintenance, repair and replacement or "MRR"). Approximately 80% of 1999 revenues was generated from both new construction and renovation and retrofit projects and approximately 20% of 1999 revenues was generated from facilities services operations. For the period 1996 through 1999, revenues and EBITDA grew at compound annual growth rates of 20.4% and 42.3%, respectively. The Business The broad scope of EMCOR's operations are more particularly described below. 1 Mechanical and Electrical Construction Services and Facilities Services EMCOR believes that the mechanical and electrical construction services and facilities services business is highly fragmented, consisting of thousands of small companies across the United States and around the world. Because EMCOR has total assets, annual revenues, net worth, and expertise significantly greater than most of its competitors, EMCOR believes it has a significant competitive advantage. The mechanical and electrical construction services industry has a higher growth rate than the overall construction industry, due principally to the increase in content and complexity of mechanical and electrical systems in all types of projects. This increased content and complexity is, in part, a result of the expanded use of computers and more technologically advanced voice and data communications, lighting, and environmental control systems in all types of facilities. For these reasons, buildings of all types consume more electricity per square foot than in the past and thus need more extensive electrical distribution systems. In addition, advanced voice and data communication systems require more sophisticated power supplies and extensive low voltage and fiber-optic communications cabling. Moreover, the need for greater environmental controls within a building, such as the heightened need for climate control to maintain extensive computer systems at optimal temperatures, and the growing demand for environmental control in individual spaces, have created expanded opportunities for the mechanical and electrical construction services and facilities services business. Mechanical and electrical construction services primarily involve the design, integration, installation and start-up of: (1) distribution systems for electrical power, including power cables, conduits, distribution panels, transformers, generators, uninterruptible power supply systems and related switch gear and controls; (2) lighting systems, including fixtures and controls; (3) low-voltage systems, including fire alarm, security, and process control systems; (4) voice and data communications systems, including fiber-optic and low voltage copper cabling; (5) heating, ventilation, air conditioning (collectively, "HVAC"), refrigeration and clean-room process ventilation systems; and (6) plumbing, process and high-purity piping systems. Mechanical and electrical construction services generally fall into one of two categories: (1) large installation projects with contracts often in the multi-million dollar range that involve construction of industrial and commercial buildings and institutional and public works facilities or the fit-out of large blocks of space within commercial buildings and (2) smaller installation projects typically involving fit-out, renovation and retrofit work. EMCOR's mechanical and electrical construction services operations accounted for about 80% of its 1999 revenues, of which revenues approximately 57% was related to new construction and approximately 43% was related to renovation and retrofit projects. EMCOR provides mechanical and electrical construction services for both large and small installation and renovation projects. Its largest projects include those (1) for institutional use (such as water and wastewater treatment facilities, hospitals, correctional facilities, schools and research laboratories); (2) for industrial use (such as pharmaceutical factories, steel, pulp and paper mills, chemical, automotive and semiconductor plants, and oil refineries); (3) for transportation systems (such as airports and transit systems); and (4) for commercial use (such as office buildings, data centers, hotels, casinos, convention centers, sports stadiums, shopping malls and resorts). EMCOR's largest projects, typically in excess of $10.0 million, are usually multi-year projects and range in size up to, and occasionally in excess of, $50.0 million. These projects represented about 23% of EMCOR's construction services revenues in 1999. EMCOR's projects of less than $10.0 million accounted for approximately 77% of 1999 construction services revenues. These projects are typically completed in less than a year. They usually involve mechanical and electrical construction services when an end-user or owner undertakes construction or modification of a facility to accommodate a specific use. These projects frequently require mechanical and electrical systems to meet special needs such as redundant power supply systems, special environmental controls and high-purity air systems, sophisticated electrical and mechanical systems for data centers, including those associated with internet service providers and electronic commerce, trading floors in financial services businesses, new production lines in manufacturing plants and office arrangements in existing office buildings. These types of projects are not usually dependent upon the new construction market. Demand for them is often prompted by the expiration of leases, changes in technology or changes in the customer's plant or office layout in the normal course of a customer's business. EMCOR performs its services pursuant to contracts with owners, such as corporations, municipalities and other governmental entities, general contractors, systems suppliers, construction managers, developers, other subcontractors and tenants of commercial properties. Institutional and public works projects are frequently long-term, complex projects that require significant technical and management skills and the financial strength to, among other things, 2 obtain bid and performance bonds, which are often a condition to bidding for, and award of, these projects. EMCOR also installs and maintains street, highway, bridge and tunnel lighting, traffic signals, computerized traffic control systems and signal and communication systems for mass transit systems in several metropolitan areas. In addition, in the United States, EMCOR manufactures and installs sheet metal air handling systems for both its own mechanical construction operations and for unrelated mechanical contractors. EMCOR also maintains welding and pipe fabrication shops for some of its own mechanical operations. EMCOR also provides customers with facility support services which are not related to construction projects. These services, frequently referred to as facilities services, generated approximately 20% of 1999 revenues. Following completion of construction projects, EMCOR has historically provided technical support services to many of its customers, involving maintenance and service of mechanical and electrical systems and small modification and retrofit projects that support their day-to-day needs. In addition, EMCOR provides other services to owners, operators, tenants and managers of all types of facilities both on a contract basis for a specified period of time and on an individual task order basis. Facilities services include customer-based operations and maintenance, mobile maintenance service, small modification and retrofit projects, consulting, program development and management for energy systems and maintenance activities. These services are provided to a wide range of commercial, industrial and institutional facilities, including both those for which EMCOR provided construction services and those for which construction services were provided by others. The services are frequently bundled to provide integrated service packages and may include services in addition to EMCOR's core mechanical and electrical services. EMCOR has experienced an expansion in the demand for its facilities services which it believes is driven by customers' downsizing programs and their focus on their own core competencies, the increasing technical complexity of their facilities and their mechanical, electrical, voice and data and other systems, and the need for increased reliability, especially in mechanical and electrical systems. These trends have led to outsourcing and privatization programs whereby customers in both the private and public sectors seek to contract out those activities that support but are not directly involved in the customer's business. In the early 1990's the market for facilities services grew rapidly in the United Kingdom as a result of government initiatives. EMCOR's United Kingdom subsidiary expanded its traditional technical service business in response to these opportunities and established a dedicated unit to focus on the facilities services business. This unit currently provides a full range of facilities services to public and private sector customers under multi-year agreements, including maintaining British Airways' facilities at Heathrow and Gatwick Airports, the new British Library, the Department of Trade and Industry offices in London, and the new Jubilee Line Extension of the London Underground. In the United Kingdom, EMCOR also provides facilities services at several automotive manufacturing plants for the Rover Group and various British Aerospace facilities. In addition, the United Kingdom operations provide on-call and mobile service support on a task-order or contract basis, small renovation project work, data communications, security system installation, and maintenance services. EMCOR, by virtue of its construction and facilities services expertise, is involved with teams for several private finance initiatives ("PFIs") sponsored by the British government. The PFIs, which involve the governmental bodies responsible for the national healthcare system, social security, and air traffic control, among others, seek to transfer ownership and management of United Kingdom government facilities, such as office buildings and hospitals, to teams of financial institutions, consulting service groups, construction groups and facilities services providers, which competitively bid for PFI contracts. During 1998 EMCOR was awarded a contract to provide mechanical and electrical services, ground maintenance and other ancillary services for five to seven years to approximately 300 buildings which were formerly owned and managed by the United Kingdom Department of Social Services. These facilities were privatized as part of the PFI program. EMCOR has built on its United Kingdom experience to market its facilities services business to international markets and currently provides facilities services through joint ventures to several companies in South Africa. In 1997, EMCOR established a new subsidiary to expand its facilities services operations in North America patterned on its United Kingdom business. This unit seeks to build on existing mechanical and electrical services capabilities, facilities services activities at existing subsidiaries, and EMCOR's client relationships in order to expand the scope of services currently offered and to develop packages of services for customers on a regional, national and global basis. EMCOR's North American facilities services strategy includes initiation and expansion of facilities 3 services operations at subsidiaries that provide mechanical and electrical construction services, including the offering of bundled facilities services programs, integrating two or more services, and development of facilities services business independent of construction services through an acquisition program. In addition, management also has targeted growth in facilities services opportunities arising from the deregulation of the electric utility industry, deregulation and expansion of the telecommunications industry and the REIT-driven consolidation of the commercial real estate industry. The deregulation of, and increased competition in, the utility industry, along with government mandates calling for reduced energy consumption by government entities, have led to renewed focus on energy costs and conservation measures. These measures typically include energy assessments and engineering studies, retrofit construction to implement energy savings measures, and the long-term operation and maintenance of energy savings measures to ensure continued performance. Various subsidiaries of EMCOR have participated in energy savings programs in the past. EMCOR's facilities services subsidiary has established strategic alliances with, among others, DukeSolutions, Inc., a subsidiary of Duke Energy Corp., to provide energy assessment, design, installation, and operations and maintenance services for various Department of Defense facilities located in 46 states, the District of Columbia and Puerto Rico. EMCOR expects additional similar programs to be undertaken as the deregulation of electric utilities continues in the United States, and believes that because it has the ability to be a single source provider of construction and facilities services it will have a significant advantage in obtaining this type of work. As part of its expansion of its facilities services business, during 1998, EMCOR acquired a Bakersfield, California based maintenance program consulting service firm, a Los Angeles, California area based mobile, mechanical services firm and a Richmond, Virginia based industrial facilities services firm to expand its capabilities in this field. In 1999, EMCOR acquired a Boston, Massachusetts based firm that provides mobile services in the New England area and site based operations and maintenance services throughout the Eastern United States. These acquisitions permit EMCOR to offer integrated construction and operations and maintenance services. The deregulation and expansion of the telecommunications industry have led to a rapid expansion of installed infrastructure, including wireless communication systems and long distance networks, much of which has been built by companies that do not have existing maintenance operations and which seek to contract out such services. EMCOR has provided construction services for the infrastructure of telecommunications companies and facilities services to support their operations. In this industry, EMCOR has worked on facilities owned by such service providers as Sprint, AT&T, and MCI, has installed and maintained equipment for suppliers such as Lucent, Nortel, and Seimens, and has provided construction and maintenance services to competitive local service providers, such as Teleport Communications Group, now part of AT&T, and to users who maintain their own systems. EMCOR has also provided construction and maintenance services to many internet service providers in support of their data center facilities. These customers include Metromedia Fiber Network, Exodus Communications, Level 3 Communications, and Qwest Communications International. EMCOR offers facilities services to customers on single-task and multi-task bases depending on a customer's needs, under either short-term or multi-year agreements. EMCOR's services often require that its employees be permanently assigned to customer premises around the clock. EMCOR believes mechanical and electrical construction services and facilities services activities are complementary, permitting it to offer customers a comprehensive package of services. The ability to offer both construction and facilities services should enhance EMCOR's competitive position with customers. Furthermore, EMCOR's facilities services operations tend to be less cyclical than its construction operations because facilities services are more responsive to the needs of an industry's operations requirements rather than its construction requirements. Competition EMCOR believes that the mechanical and electrical construction services business is highly fragmented and competitive. A majority of EMCOR's revenues are derived from jobs requiring competitive bids; however, an invitation to bid is often conditioned upon prior experience, technical capability and financial strength. EMCOR competes with national, regional and local companies, many of which are small, owner-operated entities that operate in a limited geographic area. There are few public companies focused on providing mechanical and electrical construction services, although in the last three years more public national and regional firms have been established. 4 EMCOR is the largest provider of mechanical and electrical construction services in the United States and Canada and one of the largest in the United Kingdom and the world. In the future, significant competition may be encountered from public utilities and companies attempting to consolidate mechanical and electrical construction services companies. Competitive factors in the mechanical and electrical construction services business include: (1) the availability of qualified and/or licensed personnel; (2) reputation for integrity and quality; (3) safety record; (4) cost structure; (5) relationships with customers; (6) geographic diversity; (7) the ability to control project costs; (8) experience in specialized markets; (9) the ability to obtain bonding; and (10) adequate working capital. While the facilities services business is also highly fragmented, a number of large corporations such as Johnson Controls, Inc. and Fluor Corp. are engaged in this field, and there are other companies seeking to consolidate facilities services businesses. EMCOR's facilities services operations are well established in the United Kingdom and are being developed through the combination of acquisitions and growth of EMCOR's existing operations in the United States. Employees EMCOR presently employs approximately 20,000 people, approximately 78% of whom are represented by various unions pursuant to collective bargaining agreements between EMCOR's individual subsidiaries and local unions. EMCOR believes that its employee relations are generally good. Backlog EMCOR had backlog as of December 31, 1999 of approximately $1.77 billion, compared with backlog of approximately $1.33 billion as of December 31, 1998. Backlog includes facilities services revenues to be derived during the immediately succeeding 12 months pursuant to then-existing contracts. Backlog increased by $440.3 million as of December 31, 1999 compared to December 31, 1998 due to $48.1 million of increased United States electrical construction and facilities services backlog; $292.5 million of increased United States mechanical construction and facilities services backlog; $43.4 million of increased Canada construction and facilities services backlog; and $14.7 million of increased United Kingdom construction and facilities services backlog. The increase in United States backlog was due to backlog of companies acquired in 1999 of $316.0 million, plus increases in backlog related to the balance of EMCOR's United States operations. The increase in Canada backlog was due to several large contract awards. For the year ended December 31, 1999, EMCOR had more than $2.89 billion in revenues compared to more than $2.21 billion in revenues for the year ended December 31, 1998. 5 Item 2. Properties The operations of EMCOR are conducted primarily in leased properties. The following table lists major facilities:
Lease Expiration Approximate Date, Unless Square Feet Owned --------------- ---------------- Corporate Headquarters 101 Merritt Seven Corporate Park Norwalk, Connecticut ............................ 20,805 4/7/05 Operating Facilities 1200 North Sickles Road Tempe, Arizona .................................. 29,000 Owned 1000 N. Kraemer Place 20,220 6/30/02 Anaheim, California ............................. 3208 Landco Drive Bakersfield, California ......................... 49,875 6/30/02 25601 Clawiter Road Hayward, California ............................. 34,800 6/30/03 3100-3120 Diablo Avenue Hayward, California ............................. 23,641 5/31/01 5 Vanderbilt Irvine, California .............................. 18,000 7/31/04 4462 Corporate Center Drive Los Alamitos, California ........................ 41,400 12/31/00 825 Howe Road Martinez, California ............................ 109,800 12/31/02 4464 Alvarado Canyon Road San Diego, California ........................... 40,000 10/31/07 414 Brannan Street San Francisco, California ....................... 10,283 3/31/01 4405 and 4420 Race Street Denver, Colorado ................................ 16,890 9/30/01 345 Sheridan Boulevard Lakewood, Colorado .............................. 63,000 Owned 367 Research Parkway Meriden, Connecticut ............................ 23,500 7/31/04 1781 N.W. North River Drive Miami, Florida .................................. 11,285 Owned 5697 New Peachtree Road Atlanta, Georgia ................................ 27,200 11/30/00
6
Lease Expiration Approximate Date, Unless Square Feet Owned --------------- ---------------- 2100 South York Road Oak Brook, Illinois ............................. 77,700 5/31/08 2655 Garfield Road Highland, Indiana ............................... 48,027 7/08/01 4530 Hollins Ferry Road Baltimore, Maryland ............................. 26,792 Owned 306 Northern Avenue Boston, Massachusetts ........................... 47,456 6/30/05 70-70D Hawes Way Stoughton, Massachusetts ........................ 24,400 12/31/00 22925-22931 Industrial Drive West St. Clair Shores, Michigan ...................... 19,000 4/30/05 1100 Combermere Troy, Michigan .................................. 9,500 12/31/00 6060 Hix Road Westland, Michigan .............................. 23,000 12/31/03 3555 W. Oquendo Road Las Vegas, Nevada ............................... 90,000 11/30/03 6325 South Valley Boulevard Las Vegas, Nevada ............................... 23,190 12/31/01 6754 W. Washington Avenue Pleasantville, New Jersey ....................... 45,400 1/14/02 26 West Street Brooklyn, New York .............................. 15,000 Owned 111-01 14th Avenue College Point, New York ......................... 77,000 2/28/06 305 Suburban Avenue Deer Park, New York ............................. 33,535 3/31/00 111 West 19th Street New York, New York .............................. 26,885 5/31/03 Two Penn Plaza New York, New York .............................. 57,200 2/01/06 4906 Barrow Avenue Cincinnati, Ohio ................................ 16,300 9/30/03 4914 Ridge Avenue Cincinnati, Ohio................................. 25,500 9/30/03
7
Lease Expiration Approximate Date, Unless Square Feet Owned --------------- ---------------- 2300-2310 International Street Columbus, Ohio .................................. 25,500 8/30/01 5550 Airline Road Houston, Texas .................................. 77,483 6/30/01 515 Norwood Road Houston, Texas .................................. 26,676 6/30/01 1574 South West Temple Salt Lake City, Utah ............................ 38,800 12/31/02 2925-2941 Space Road Richmond, Virginia .............................. 26,000 8/19/03 22930 Shaw Road Dulles, Virginia ................................ 32,600 7/31/06 109-D Executive Drive Dulles, Virginia ................................ 19,000 8/31/04 1 Thameside Centre Kew Bridge Road Kew Bridge, Middlesex, United Kingdom ........... 14,000 12/22/12 86 Talbot Road Old Trafford, Manchester, United Kingdom ........ 24,300 12/24/06 2116 Logan Avenue Winnipeg, Manitoba, Canada ...................... 19,800 Owned 3455 Landmark Boulevard Burlington, Ontario, Canada ..................... 16,100 Owned 305 Milner Avenue Scarborough, Ontario, Canada .................... 16,500 5/31/00
EMCOR believes that all of its property, plant and equipment are well maintained, in good operating condition and suitable for the purposes for which they are used. See Note K to the consolidated financial statements for additional information regarding lease costs. EMCOR utilizes substantially all of its leased facilities and believes there will be no difficulty either in negotiating the renewal of its real property leases as they expire or in finding alternative space, if necessary. 8 Item 3. Legal Proceedings The Company's subsidiary Dynalectric Company ("Dynalectric") had been a party to an arbitration proceeding arising out of Dynalectric's participation in a joint venture with Computran Systems Corp. ("Computran"). The proceeding, which was instituted in 1988 in the Superior Court of New Jersey, Bergen County ("Superior Court") by Computran, a participant in, and a subcontractor to, the joint venture, alleged that Dynalectric wrongfully terminated its subcontract, fraudulently diverted funds due to it, misappropriated its trade secrets and proprietary information, fraudulently induced it to enter into the joint venture and conspired with others to commit certain acts in violation of the New Jersey Racketeering Influence and Corrupt Organization Act. The Superior Court ordered that the matter in dispute between Dynalectric and Computran be resolved by binding arbitration in accordance with an original agreement between the parties. Following a decision by the arbitrator, the parties decided to settle all matters regarding the dispute and exchange general releases and as a consequence, Dynalectric paid Computran $1,000,000. In February 1995 as part of an investigation by the New York County District Attorney's office into the business affairs of Herbert Construction Company ("Herbert"), a general contractor that did business with EMCOR'S subsidiary, Forest Electric Corp. ("Forest"), a search warrant was executed at Forest's executive offices. At the time, EMCOR was informed that Forest and certain of its officers are targets of the continuing investigation. Neither EMCOR nor Forest has been advised of the precise nature of any suspected violation of law by Forest or its officers. On April 7, 1997, Ted Kohl, a principal of Herbert, pled guilty to one count of money laundering, one count of offering a false instrument for filing and one count of filing a false New York State Resident Income Tax Return. DPL Interiors, Inc., a company allegedly owned by Mr. Kohl, also pled guilty to one count of failing to file New York City General Income Tax Returns. Mr. Kohl and DPL Interiors, Inc. have not yet been sentenced. On July 31, 1998 a former employee of a subsidiary of EMCOR filed a class-action complaint on behalf of the participants in two employee benefit plans sponsored by EMCOR against EMCOR and other defendants for breach of fiduciary duty under the Employee Retirement Income Security Act. All of the claims relate to alleged acts or omissions which occurred during the period May 1, 1991 to December 1994. The principal allegations of the complaint are that the defendants breached their fiduciary duties by causing the plans to purchase and hold stock of EMCOR when it was then known as JWP INC. and when the defendants knew or should have known it was imprudent to do so. The plaintiff has not made claim for a specific dollar amount of damages but generally seeks to recover for the benefit plans the loss in value of JWP stock held by the plans. EMCOR and the other defendants intend to vigorously defend the case. Insurance coverage may be applicable under an EMCOR pension trust liability insurance policy for EMCOR and those present and former employees of EMCOR who are defendants in the action. Substantial settlements or damage judgements arising out of these matters could have a material adverse effect on EMCOR'S business, operating results and financial conditions. In addition to the above, EMCOR is involved in other legal proceedings and claims asserted by and against EMCOR, which have arisen in the ordinary course of business. EMCOR believes it has a number of valid defenses to these actions, and EMCOR intends to vigorously defend or assert these claims and does not believe that a significant liability will result. However, EMCOR cannot predict the outcome thereof or the impact that an adverse result of the matters discussed above will have upon EMCOR'S financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. None. 9 EXECUTIVE OFFICERS OF THE REGISTRANT Frank T. MacInnis, Age 53; Chairman of the Board and Chief Executive Officer of the Company since April 1994 and President of the Company from April 1994 to April 1997. From April 1990 to April 1994 Mr. MacInnis served as President and Chief Executive Officer, and from August 1990 to April 1994 as Chairman of the Board, of Comstock Group, Inc., a nationwide electrical contracting company. From 1986 to April 1990, Mr. MacInnis was Senior Vice President and Chief Financial Officer of Comstock Group, Inc. In addition, from 1986 to April 1994 Mr. MacInnis was also President of Spie Group Inc., which had interests in Comstock Group, Inc., Spie Construction Inc., a Canadian pipeline construction company, and Spie Horizontal Drilling Inc., a U.S. company engaged in underground drilling for the installation of pipelines and communications cable. Jeffrey M. Levy, Age 47; President of the Company since April 1997 and Chief Operating Officer of the Company since February 1994, Executive Vice President of the Company from November 1994 to April 1997, Senior Vice President of the Company from December 1993 to November 1994. From May 1992 to December 1993, Mr. Levy was President and Chief Executive Officer of the Company's subsidiary EMCOR Mechanical/Electrical Services (East) Inc. From January 1991 to May 1992 Mr. Levy served as Executive Vice President and Chief Operating Officer of Lehrer McGovern Bovis, Inc., a construction management and construction company. Sheldon I. Cammaker, Age 60; Executive Vice President and General Counsel of the Company since September 1987 and Secretary of the Company since May 1997. Prior to September 1987, he was a senior partner of the New York City law firm of Botein, Hays, & Sklar. Leicle E. Chesser, Age 53; Executive Vice President and Chief Financial Officer of the Company since May 1994. From April 1990 to May 1994 Mr. Chesser served as Executive Vice President and Chief Financial Officer of Comstock Group, Inc. and from 1986 to May 1994 he was also Executive Vice President and Chief Financial Officer of Spie Group, Inc. R. Kevin Matz, Age 41: Vice President and Treasurer of the Company since April 1996 and Staff Vice President - Financial Services of the Company from March 1993 to April 1996. From March 1991 to March 1993, Mr. Matz was Treasurer of Sprague Technologies Inc., a manufacturer of electronic components. Mark A. Pompa, Age 35; Vice President and Controller of the Company since September 1994. From June 1992 to September 1994, Mr. Pompa was an Audit and Business Advisory Manager of Arthur Andersen LLP, an accounting firm. 10 PART II Item 5. Market For The Registrant's Common Equity and Related Stockholder Matters Market Information. EMCOR's common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "EMCG". The following table sets forth high and low sales prices for the common stock for the periods indicated as reported by the Nasdaq National Market:
1999 High Low ---- ---- --- First Quarter ....................................... $17 5/8 $16 1/16 Second Quarter ...................................... $26 $16 1/2 Third Quarter ....................................... $25 1/4 $19 Fourth Quarter ...................................... $20 1/8 $16 7/8 1998 High Low ---- ---- --- First Quarter ....................................... $23 1/8 $19 1/4 Second Quarter ...................................... $22 1/8 $19 1/8 Third Quarter ....................................... $20 1/4 $12 1/2 Fourth Quarter ...................................... $16 11/16 $13 3/8
Holders. As of February 18, 2000 there were 167 shareholders of record and, as of that date, EMCOR estimates there were approximately 1,100 beneficial owners holding stock in nominee or "street" name. Dividends. EMCOR did not pay dividends on its common stock during 1999 or 1998, and it does not anticipate that it will pay dividends on its common stock in the foreseeable future. EMCOR's working capital credit facility limits the payment of dividends on its common stock. 11 Item 6. Selected Financial Data (in thousands, except per share data) The following selected financial data has been derived from audited financial statements and should be read in conjunction with the consolidated financial statements, the related notes thereto and the report of independent public accountants thereon, included elsewhere in this Form 10-K and in previously filed annual reports on Form 10-K of EMCOR. Income Statement Data
Year Ended December 31, ----------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Revenues ........................................ $2,893,962 $2,210,374 $1,950,868 $1,669,274 $ 1,588,744 Gross profit .................................... 295,907 223,287 182,183 160,788 143,147 Operating income ................................ 58,091 37,224 27,414 17,114 5,893 Income (loss) before extraordinary items......... 27,821 17,092 8,581 9,437 (10,853) Extraordinary items - loss on early extinguishment of debt, net of income taxes... -- (4,777) (1,004) -- -- ----------------------------------------------------------------------------- Net income (loss) ............................... $ 27,821 $ 12,315 $ 7,577 $ 9,437 $ (10,853) ============================================================================= Basic earnings (loss) per share: (a) Income (loss) before extraordinary items......... $ 2.86 $ 1.67 $ 0.90 $ 1.00 $ (1.13) Extraordinary items - loss on early extinguishment of debt, net of income taxes... -- (0.47) (0.11) -- -- ----------------------------------------------------------------------------- Basic earnings (loss) per share ................. $ 2.86 $ 1.20 $ 0.79 $ 1.00 $ (1.13) ============================================================================= Diluted earnings (loss) per share: (a) Income (loss) before extraordinary items......... $ 2.21 $ 1.46 $ 0.84 $ 0.96 $ (1.13) Extraordinary items - loss on early extinguishment of debt, net of income taxes... -- (0.35) (0.10) -- -- ----------------------------------------------------------------------------- Diluted earnings (loss) per share ............... $ 2.21 $ 1.11 $ 0.74 $ 0.96 $ (1.13) =============================================================================
Balance Sheet Data
As of December 31, ---------------------------------------------------------------- ------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Stockholder's equity (b) ........................ $ 170,249 $ 119,816 $ 95,323 $ 83,883 $ 70,610 Total assets .................................... $1,056,489 $ 801,002 $ 660,654 $ 620,700 $ 710,945 Goodwill......................................... $ 68,009 $ 22,745 $ 927 -- -- Net assets held for sale ........................ -- -- -- -- $ 61,969 Notes payable ................................... $ 1,150 $ 8,314 -- -- $ 14,665 Borrowings under working capital credit lines.... -- -- $ 9,497 $ 14,200 $ 25,000 7% Senior secured notes ......................... -- -- -- -- $ 61,969 Other long-term debt, including current maturities.................................... $ 116,534 $ 116,086 $ 62,657 $ 72,405 $ 68,989 Capital lease obligations ....................... $ 554 $ 837 $ 1,482 $ 1,007 $ 1,284
- ------------------- (a) Effective December 31, 1997 EMCOR adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Accordingly, earnings per share information for years prior to December 31, 1997 has been restated to conform to current year presentation. (b) No cash dividends on EMCOR's common stock have been paid during the past five years. 12 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition Highlights Revenues for the year ended December 31, 1999 were $2.89 billion, compared to $2.21 billion and $1.95 billion for the years ended December 31, 1998 and 1997, respectively. Income before extraordinary items was $27.8 million for 1999, an increase of $10.8 million, or 63.2% from $17.1 million for 1998 and for 1997 income before extraordinary items was $8.6 million. Diluted earnings per share on income before extraordinary items were $2.21 per share for 1999, compared to $1.46 per share for 1998 and $0.84 per share for 1997. EMCOR's increased results of operations for 1999 were attributable to companies acquired during 1997, 1998 and 1999, as well as the balance of EMCOR'S operations. Growth from the balance of EMCOR's operations in 1999 resulted in a 9.4% increase in 1999 revenues compared to 1998. Operating Segments EMCOR's business consists of the following operating segments: United States electrical construction and facilities services, United States mechanical construction and facilities services, United States other services which consists primarily of operations that provide consulting and maintenance services, Canada construction and facilities services, United Kingdom construction and facilities services, and Other international. Other international represents the Company's operations outside of the United States, Canada and the United Kingdom, primarily in the Middle East and Asia Pacific, performing electrical construction, mechanical construction and facilities services. Results of Operations Revenues Revenues for the year ended December 31, 1999 increased 30.9% to $2.89 billion, compared to $2.21 billion of revenues for 1998. The increase in revenues for 1999 compared to 1998 was attributable to $476.1 million of revenues from companies acquired during 1999 and 1998, and revenue growth from the balance of EMCOR's operations of $207.5 million. Revenues for 1998 of $2.21 billion represented a 13.3% increase over revenues of $1.95 billion for 1997. Companies acquired during 1998 accounted for approximately $65.0 million of the increase in 1998 revenues over 1997. The following table presents EMCOR's revenues by operating segment and the approximate percentage of total revenues for the years ended December 31, 1999, 1998 and 1997 (in thousands, except for percentages):
% of % of % of 1999 Total 1998 Total 1997 Total ---- ----- ---- ----- ---- ----- Revenues: United States electrical construction and facilities services ................................................. $ 993,073 34% $ 888,594 40% $ 744,996 38% United States mechanical construction and facilities services.................................................. 1,053,727 36% 599,616 27% 577,590 30% United States other services .................................. 96,150 3% 14,392 1% 3,019 - -------------------------------------------------------------------- Total United States Operations ................................ 2,142,950 74% 1,502,602 68% 1,325,605 68% Canada construction and facilities services ................... 196,694 7% 201,918 9% 179,046 9% United Kingdom construction and facilities services ........... 553,654 19% 493,278 22% 407,449 21% Other International............................................ 664 - 12,576 1% 38,768 2% -------------------------------------------------------------------- Total Worldwide Operations .................................. $2,893,962 100% $2,210,374 100% $1,950,868 100% ====================================================================
Revenues for its United States electrical construction and facilities services segment for 1999 increased by $104.5 million, or 11.8% compared to 1998. Revenues from companies acquired during 1999 and 1998 contributed $23.0 million of the increase, whereas $81.5 million, or a 9.2% increase, was due to growth from the balance of EMCOR's United States electrical construction and facilities services businesses. The growth in revenues from the balance of EMCOR's operations was due to continuing favorable market conditions for business units located in the Eastern and Midwest United States, partially offset by anticipated decreases in certain business activities in the Western United States. The favorable market conditions were due to increased renovation projects in these locations, as well as increased new construction spending. The decreased business activities in the Western United States was primarily attributable to reduced new construction activity on casinos in Las Vegas. The $143.6 million, or 19.3%, increase in 13 1998 revenues compared to 1997, was attributable to $19.4 million of revenues from companies acquired during 1998 as well as from growth from the balance of other business units located primarily in the Eastern and Midwestern United States. In particular, 1998 revenues were favorably impacted, compared to 1997, by increased interior renovation projects in New York City commercial office buildings associated with corporate relocations. United States mechanical construction and facilities services revenues increased $454.1 million, or 75.7%. Revenues from companies acquired during 1999 and 1998 contributed $377.5 million, whereas $76.6 million of the increase in revenues, or a 12.8% increase, was due to growth from the balance of EMCOR's United States mechanical construction and facilities services. Eastern and Western United States based operations were the major contributors to the increase in revenue due to the continued strong renovation market in New York City and strengthened new construction markets in Denver and Salt Lake City. A $22.0 million, or 3.8%, increase in revenues for 1998 compared to 1997 was attributable to $38.2 million of revenues related to 1998 acquisitions offset by the anticipated reduction of certain business activities in California. United States other revenues increased by $81.8 million for 1999 compared to 1998. The primary source of the increase in 1999 was revenues of $75.6 million from companies acquired during 1999 and 1998. Revenues from the balance of EMCOR's operations increased by $6.2 million, or 42.7%, compared with 1998 revenues. Revenues for 1998 increased by $11.4 million versus 1997, primarily attributable to revenues of $7.3 million from companies acquired during 1998 and increased revenues from the balance of EMCOR's United States other operations. Revenues of Canada construction and facilities services decreased by $5.2 million, or 2.6%, for 1999 as compared to 1998 revenues. The decrease in revenues for 1999 compared with 1998 was primarily due to a reduced level of activities in Eastern Canada and from delays during 1999 in the commencement of certain projects caused by delays in the bidding process for certain jobs. The $22.9 million, or 12.8%, increase in revenues for 1998 compared with 1997 was attributable to the increase in construction and facility services activities in the Eastern Canadian markets. United Kingdom construction and facilities services revenues increased $60.4 million, or 12.2%, for 1999 compared to 1998 revenues principally due to continued growth in selected construction and facilities markets, combined with an increase in revenues associated with two major projects. The $85.8 million, or 21.0%, increase in 1998 revenues compared with 1997 revenues was attributable to growth in the construction and facilities services market, primarily in the Southern United Kingdom. Revenues of the Other international decreased for 1999 to $0.7 million, compared to $12.6 million for 1998 and $38.8 million for 1997. The decline in revenues for 1999 compared to 1998 was due to the completion of several large projects in the Middle East and Asia markets during 1998. The decline for 1998 compared to 1997 was due to a reduction of the level of ownership in, and related share of revenues, from certain joint venture activities. EMCOR continues to pursue new business selectively in these markets. Cost of Sales and Gross Profit The following table presents EMCOR's cost of sales, gross profit, and gross profit as a percentage of revenues for the years ended December 1999, 1998 and 1997 (in thousands, except for percentages):
1999 1998 1997 ---- ---- ---- Cost of sales $2,598.1 $1,987.1 $1,768.7 Gross profit $ 295.9 $ 223.3 $ 182.2 Gross profit as a percentage of revenues 10.2% 10.1% 9.3%
Gross profit increased $72.6 million, or 32.5%, for 1999 compared to 1998, primarily due to the increase in 1999 revenues over 1998 revenue levels as explained above. EMCOR reported gross profit as a percentage of revenues of 10.2% for 1999 compared to 10.1% for 1998. The moderate increase in gross profit as a percentage of revenues is attributable to the mix of projects completed and in progress during 1999. Gross profit increased $41.1 million, or 22.6%, for 1998 compared to 1997, and gross profit as a percentage of revenues increased 0.8% for the 1998 period compared with 1997. The increase in gross profit and gross profit as a percentage of revenues was primarily due to increased revenues in markets such as New York City, Boston, Washington, D. C., Denver and Salt Lake City, markets in which higher gross profit projects are more typical than in other markets. 14 The following table presents EMCOR's selling, general and administrative expenses, and selling, general and administrative expenses as a percentage of revenues for the years ended December 31, 1999, 1998 and 1997 (in thousands, except for percentages):
1999 1998 1997 ---- ---- ---- Selling, general & administrative expenses................................ $237.8 $186.1 $154.8 Selling, general & administrative expenses as a percentage of revenues.... 8.2% 8.4% 7.9% Selling, general & administrative expenses as a percentage of revenues excluding amortization of goodwill...... 8.1% 8.4% 7.9%
Selling, general and administrative expenses increased $51.7 million, or 27.8%, between 1999 and 1998. As a percentage of revenues, selling, general and administrative expenses decreased by 0.2% to 8.2% in 1999 as compared to 8.4% in 1998. Selling, general and administrative expenses increased $31.3 million, or 20.2%, between 1998 and 1997. As a percentage of revenues, selling, general and administrative expenses, increased by 0.5% to 8.4% in 1998 as compared to 7.9% in 1997. The dollar increase during 1999 as compared to 1998 was attributable to incremental selling, general and administrative expenses from companies acquired during 1999 and 1998, as well as the effect of the overall increase in revenues on variable indirect overhead costs. The decrease in selling, general and administrative expenses as a percentage of revenues for 1999 compared to 1998 was primarily due to the leveraging of fixed costs over increased revenues and the generally lower selling, general and administrative expenses as a percentage of revenues for companies acquired during 1999 and 1998. This decrease was partially offset by increases in selling, general and administrative expenses due to the continued development of EMCOR's facilities services operations, which operations generally require greater selling, general and administrative expenses than construction services. The increase in selling, general and administrative expenses for 1998 as compared to 1997 was primarily attributable to increased revenues and the corresponding increase in variable selling, general and administrative expenses required to support the increased revenue base. The increase of 0.5% in selling, general and administrative expenses as a percentage of revenues was primarily due to the geographic area in which increased revenues were earned (markets which required a higher level of selling, general and administrative expense spending to support the revenue base) and the continued development of EMCOR's facilities services operations. The following table presents EMCOR's operating income, and operating income as a percentage of segment revenues, for the years ended December 31, 1999, 1998 and 1997 (in thousands, except for percentages):
% of % of % of Segment Segment Segment 1999 Revenues 1998 Revenues 1997 Revenues ---- -------- ---- -------- ---- -------- Operating income (loss): United States electrical construction and facilities services ........................................... $ 38,485 3.9% $ 36,315 4.1% $ 28,696 3.9% United States mechanical construction and and facilities services ........................... 37,815 3.6% 20,955 3.5% 18,627 3.2% United States other .................................. (4,390) -- (4,783) -- (2,103) -- ----------- ------------ ----------- Total United States Operations ........................ 71,910 3.4% 52,487 3.5% 45,220 3.4% Canada construction and facilities services ........... 3,991 2.0% 5,000 2.5% 4,174 2.3% United Kingdom construction and facilities services .......................................... 3,208 0.6% (876) -- (4,859) -- Other International ................................... (355) -- (1,260) -- (1,129) -- Corporate Administration .............................. (20,663) -- (18,127) -- (15,992) -- ----------- ------------ ----------- Total Worldwide Operations ............................ 58,091 2.0% 37,224 1.7% 27,414 1.4% Other Corporate Items: Interest expense ...................................... (10,520) (11,041) (13,029) Interest income ....................................... 2,107 3,558 1,077 ----------- ------------ ----------- Income before taxes and extraordinary items ........... $49,678 $ 29,741 $ 15,462 =========== ============ ===========
15 Operating income increased for the United States electrical construction and facilities services operations for 1999 compared to 1998. The dollar increase in operating income for 1999 of $2.2 million, or 6.0%, as compared to 1998, was attributable to the incremental effect of businesses acquired during 1999 and 1998 as well as growth from the balance of EMCOR's operations. As a percentage of revenues, operating income decreased by 0.3% for 1999 as compared to 1998 primarily due to reduced operating income for certain operations which were only partially offset by a higher percentage of revenues being derived from markets where higher operating income margins are more typical than in other EMCOR markets, particularly in Eastern United States cities such as New York City, Boston and Washington, D.C. Operating income for 1998 for the United States electrical construction and facilities services operations increased $7.6 million, or 26.6% from 1997 levels due to a similar increase in revenues for businesses operating in the Eastern United States, particularly in New York City due to renovation projects. United States mechanical construction and facilities services operations operating income increased $16.9 million for 1999, an 80.5% increase over 1998 amounts primarily due to growth of EMCOR's existing businesses and operating income contributed by businesses acquired during 1999 and 1998. For 1998 compared with 1997, operating income increased $2.3 million, or 12.5%, primarily due to businesses acquired in 1998. As a percentage of revenues, operating income increased 0.3% from 1997 to 1998 and 0.1% from 1998 to 1999, principally due to the continued strong renovation market in New York City and new construction markets in Denver and Salt Lake City. United States other operating losses decreased $0.4 million for 1999 as compared to 1998 primarily due to the continuing development of consulting and maintenance services operations, offset partially by incremental operating income from certain businesses acquired during 1999 and 1998. Operating losses for 1998 compared to 1997 increased by $2.7 million primarily due to costs associated with the development of the consulting and maintenance services activities. Canada construction and facilities services operations operating income decreased by $1.0 million for 1999 compared to 1998 principally due to the decrease in revenues derived from Eastern Canada operations and the delay in commencing certain projects in 1999 caused by delays in the bidding process for certain jobs. Operating income as a percentage of revenues decreased 0.5% in 1999 compared to 1998 for the same reasons attributable to the dollar decrease in operating income. The 0.2% increase in operating income as a percentage of revenues for 1998 compared to 1997 was primarily due to the increase in construction and facility services activities in the Eastern Canadian markets, which markets generally have higher operating margin jobs than typical in other markets in which EMCOR operates. United Kingdom construction and facilities services operating income of $3.2 million for 1999 was an improvement compared to an operating loss of $0.9 million for 1998. The improvement was primarily attributable to growth in selected construction and facilities services markets in the United Kingdom. For 1998, operating losses decreased to $0.9 million, as compared to operating losses of $4.9 million for 1997. This decrease was attributable to growth in revenues for EMCOR operations in the Southern United Kingdom. General corporate expenses for 1999 increased by $2.5 million from 1998 levels, and increased by $2.1 million between 1998 and 1997 periods. The increases are attributable to increased variable overhead costs associated with the Company's increased revenues, as well as incremental fixed costs to support future growth in operations. Interest expense decreased by $0.5 million for 1999 compared to 1998, principally due to lower average outstanding borrowings. In addition, EMCOR's cost of borrowing was lower during 1999 as compared to 1998. The cost of borrowing was lower due to the 1998 issuance of 5.75% convertible subordinated notes, a portion of the proceeds from which were used to repay the Series C notes. These transactions accounted for the decrease in interest expense. In addition, in December 1998 EMCOR amended its working capital facility which generally provided for lower costs of borrowing. Interest expense decreased $2.0 million for 1998 compared with 1997 due primarily to the above mentioned Series C and Convertible Subordinated Notes transactions in March 1998. Interest income decreased by $1.5 million for 1999 compared with 1998, primarily due to reduced cash available to invest after approximately $55.8 million was utilized for acquisitions in 1999. Interest income increased by $2.5 million for 1998 compared to 1997. This increase was due to the increase in available cash balances resulting from the sales proceeds of the 5.75% convertible subordinated notes and equity offering. 16 Liquidity and Capital Resources On March 18, 1998, EMCOR sold, pursuant to underwritten public offerings, $100.0 million principal amount of 5.75% convertible subordinated notes and 1,100,000 shares of its common stock. Interest on the 5.75% convertible subordinated notes is payable semi-annually. The 5.75% convertible subordinated notes are unsecured indebtedness of EMCOR and are convertible at any time into common stock of EMCOR at a conversion price of $27.34 per share. On March 24, 1998, the underwriter of the 5.75% convertible subordinated notes offering exercised in full its over-allotment option to purchase an additional $15.0 million of 5.75% convertible subordinated notes, and accordingly, an additional $15.0 million principal amount of such notes were issued. During the third quarter of 1998, EMCOR's Board of Directors authorized a stock repurchase program under which EMCOR may repurchase up to $20.0 million of its common stock. As of December 31, 1999, EMCOR had repurchased 1,131,995 shares of its Common Stock at an aggregate cost of approximately $16.8 million. Proceeds received from the sale of the 5.75% convertible subordinated notes along with proceeds from the sale of common stock were used to redeem the Series C Notes, repay then outstanding borrowings under EMCOR's working capital credit lines, prepay EMCOR's supplemental sellco note and accrued interest thereon and for the acquisition of certain businesses through December 31, 1999. The following table presents EMCOR's net cash provided by operating activities, net cash provided by financing activities and net cash used in investing activities for the years ended December 31, 1999 and 1998 (in thousands):
1999 1998 -------------- -------------- Net cash provided by operating activities $ 35,618 $ 35,312 Net cash used in investing activities $ (60,475) $ (40,231) Net cash provided by financing activities $ 356 $ 38,596
The Company's consolidated cash balance decreased by $24.5 million from $83.1 million at December 31, 1998 to $58.6 million at December 31, 1999. Net cash provided by operating activities for 1999 was $35.6 million, an increase of $0.3 million from $35.3 million for 1998. The cash provided by operating activities was primarily due to increased net income, non-cash net income items, increased contracts in progress accounts payable and accrued expenses, offset partially by increased accounts receivable. Net cash used in investing activities for 1999 of $60.5 million consisted primarily of $55.8 million for acquisitions and $10.7 million for the net purchase of property, plant and equipment, versus $28.5 million and $10.9 million used for the same activities for 1998, respectively. Net cash provided by financing activities for 1999 of $0.4 million was primarily due to net proceeds from the exercise of common stock warrants of $10.0 million, offset by the purchase of common stock of $2.9 million and repayments of long-term debt and capital lease obligations of $7.0 million. In 1998, net cash provided by financing activities of $38.6 million was primarily due to the issuance of convertible subordinated notes of $115.0 million, net proceeds from issuance of common stock of $22.5 million, offset partially by the retirement of Series C notes for $61.9 million, purchases of common stock for $14.0 million, payment of working capital credit lines of $9.5 million, and retirement of the Supplemental Sellco Note for $5.5 million. On December 22, 1998, EMCOR and certain of its subsidiaries amended and restated the June 19, 1996 credit facility; the amended credit facility provides EMCOR with a credit facility for borrowings of up to $150.0 million. The amended working capital credit facility, which has an expiration date of June 30, 2002, is guaranteed by certain direct and indirect subsidiaries of EMCOR. It is secured by substantially all of the assets of EMCOR and those subsidiaries, and it provides for borrowing capacity available in the form of revolving loans and/or letters of credit. The revolving loans bear interest at (1) a rate which is the prime commercial lending rate announced by Harris Trust and Savings Bank from time to time (8.5% at December 31, 1999) plus 0% to 0.5%, based on certain financial tests or (2) at a LIBOR rate (6.0% at December 31, 1999) plus 1.25% to 2.0% based on certain financial tests. The interest rates in effect at December 31, 1999 were 8.5% and 7.25%, respectively. Letters of credit fees issued under the credit facility ranging from 0.5% to 2.0% are charged based on type of letters of credit issued and certain financial tests. As of December 31, 1999 and 1998, EMCOR had approximately $17.4 million and $30.2 million of letters of credit outstanding, respectively. 17 In October 1997, the Company's Canadian subsidiary, Comstock Canada Ltd., renewed a credit agreement with a bank providing for an overdraft facility of up to Cdn. $0.5 million. The facility is secured by a standby letter of credit and provides for interest at the bank's prime rate (6.5% at December 31, 1999). There were no borrowings outstanding under this credit agreement at December 31, 1999 and 1998. The Canadian subsidiary may utilize EMCOR's 1998 credit facility for any future working capital requirements. In 1998, EMCOR issued notes in connection with the acquisition of two companies. A principal payment of $1.0 million was made in August 1999 in respect of one note issued in August 1998, and a principal payment of the balance of $1.15 million is to be made in respect of that note in August 2000. Interest on the note is payable together with payments of principal. The other note, issued in the principal amount of $6.2 million in December 1998, was paid in full in January 1999. The Company believes that current cash balances and borrowing capacity available under lines of credit, combined with cash expected to be generated from operations, will be sufficient to provide short-term and foreseeable long-term liquidity and meet expected capital expenditure requirements. Certain Insurance Matters As of December 31, 1999, EMCOR was utilizing approximately $17.4 million of letters of credit obtained under its working capital credit facility as collateral for its current insurance obligations. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133" or "the Statement"). SFAS No. 133, as amended by SFAS No. 137, establishes for fiscal quarters of fiscal years beginning after June 15, 2000 accounting and reporting standards requiring derivative instruments, as defined, to be measured in the financial statements at fair value. The Statement also requires that changes in the derivative instruments' fair value be recognized currently in earnings unless certain accounting criteria are met. EMCOR does not expect the provision of SFAS No. 133 to have a significant effect on the financial condition or results of operations of EMCOR. Quantitative and Qualitative Disclosures about Market Risk EMCOR is exposed to market risk for changes in interest rates for borrowings under its working capital credit facility. The working capital credit facility bears interest at variable rates, and the fair value of this borrowing is not significantly affected by changes in market interest rates. EMCOR is exposed to market risk on a forward contract that is designated as, and is effective as, an economic hedge. The amount of this forward contract is not material to the consolidated financial statements and it is not believed that a change in foreign exchange rates would have a significant effect on the fair value of this forward contract. Amounts invested in EMCOR's foreign operations are translated into U. S. dollars at the exchange rates in effect at year end. The resulting translation adjustments are recorded as accumulated other comprehensive income, a component of stockholders' equity, in the consolidated balance sheets. Year 2000 The Year 2000 issue concerned the inability of information systems to properly recognize and process date sensitive information beyond January 1, 2000. EMCOR has completed the required modifications to its information technology systems. Modification costs have been expensed as SG&A as incurred and costs of new software have been capitalized and will be amortized over the expected useful life of the related software. Since the inception of EMCOR's efforts to address the Year 2000 issue, approximately $1.0 million has been expensed as incurred. EMCOR does not anticipate additional material expenses related to the Year 2000 issue. 18 Additionally, EMCOR has not been notified or become aware of any significant Year 2000 related incidents which could materially impact operations. However, management will continue to monitor the Year 2000 issue in the event such incidents become evident. This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995, particularly statements regarding market opportunities, market share growth, competitive growth, gross profit, and selling, general and administrative expenses. These forward-looking statements involve risks and uncertainties, that could cause actual results to differ materially from those in any such forward-looking statements. Such factors include, but are not limited to adverse changes in general economic conditions, including changes in the specific markets for the Company's services, adverse business conditions, decreased or lack of growth, in the mechanical and electrical construction and facilities services industries, increased competition, pricing pressures, risk associated with foreign operations and other factors. 19 Item 8. Financial Statements and Supplementary Data EMCOR Group, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, ------------------------------ 1999 1998 ---- ---- ASSETS Current assets: Cash and cash equivalents ................................................ $ 58,552 $83,053 Accounts receivable, less allowance for doubtful accounts of $31,083 and $24,006, respectively ........................................... 713,593 538,457 Costs and estimated earnings in excess of billings on uncompleted contracts 137,048 91,569 Inventories .............................................................. 9,776 7,188 Prepaid expenses and other ............................................... 9,018 11,702 ------------- ----------- Total current assets .................................................... 927,987 731,969 Investments, notes and other long-term receivables ............................ 17,411 6,974 Property, plant and equipment, net ............................................ 36,509 32,098 Goodwill, less accumulated amortization of $4,204 and $786, respectively....... 68,009 22,745 Other assets .................................................................. 6,573 7,216 ------------- ----------- Total assets .................................................................. $1,056,489 $801,002 ============= ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 20 EMCOR Group, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, ------------------------------ 1999 1998 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt and capital lease obligations ....... $ 2,235 $ 7,963 Accounts payable ......................................................... 342,917 246,856 Billings in excess of costs and estimated earnings on uncompleted contracts 216,152 135,094 Accrued payroll and benefits ............................................. 84,496 62,008 Other accrued expenses and liabilities ................................... 71,782 59,996 ------------- ------------ Total current liabilities ............................................ 717,582 511,917 Long-term debt and capital lease obligations .................................. 116,003 117,274 Other long-term obligations ................................................... 52,655 51,995 ------------- ------------ Total liabilities ............................................................. 886,240 681,186 ------------- ------------ Stockholders'equity: Preferred Stock, $0.10 par value, 1,000,000 shares authorized, zero issued and outstanding .............................................................. -- -- Common Stock, $0.01 par value, 13,700,000 shares authorized, 10,427,690 and 9,830,603 shares issued and outstanding, respectively .................... 117 109 Warrants ...................................................................... -- 2,154 Capital surplus ............................................................... 142,894 114,867 Accumulated other comprehensive loss .......................................... (2,223) (1,822) Retained earnings ............................................................. 46,297 18,476 Treasury stock, at cost, 1,131,995 and 957,900 shares, respectively ........... (16,836) (13,968) ------------- ------------ Total stockholders' equity ............................................... 170,249 119,816 ------------- ------------ Total liabilities and stockholders' equity .................................... $1,056,489 $801,002 ============= ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 21 EMCOR Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS For The Years Ended December 31, (In thousands, except per share data)
1999 1998 1997 ------------- ------------- ------------- Revenues ................................................... $2,893,962 $2,210,374 $1,950,868 Costs and expenses: Cost of sales ........................................ 2,598,055 1,987,087 1,768,685 Selling, general and administrative ................... 237,816 186,063 154,769 ------------- ------------- ------------- 2,835,871 2,173,150 1,923,454 ------------- ------------- ------------- Operating income ........................................... 58,091 37,224 27,414 Interest expense ........................................... (10,520) (11,041) (13,029) Interest income ............................................ 2,107 3,558 1,077 ------------- ------------- ------------- Income before income taxes and extraordinary items ......... 49,678 29,741 15,462 Income tax provision ....................................... 21,857 12,649 6,881 ------------- ------------- ------------- Income before extraordinary items .......................... 27,821 17,092 8,581 Extraordinary items - loss on early extinguishment of debt, net of income taxes.................................... -- (4,777) (1,004) ------------- ------------- ------------- Net income ................................................. $27,821 $ 12,315 $ 7,577 ============= ============= ============= Basic earnings per share: Income before extraordinary items...................... $ 2.86 $ 1.67 $ 0.90 Extraordinary items - loss on early extinguishment of debt, net of income taxes ........................ -- (0.47) (0.11) ------------- ------------- ------------- Basic earnings per share ................................... $ 2.86 $ 1.20 $ 0.79 ============= ============= ============= Diluted earnings per share: Income before extraordinary items...................... $ 2.21 $ 1.46 $ 0.84 Extraordinary items - loss on early extinguishment of debt, net of income taxes ........................ -- (0.35) (0.10) ------------- ------------- ------------- Diluted earnings per share ................................. $ 2.21 $ 1.11 $ 0.74 ============= ============= =============
The accompanying notes to consolidated financial statements are an integral part of these statements. 22 EMCOR Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, (In thousands)
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income ..................................................... $27,821 $ 12,315 $ 7,577 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .............................. 10,675 9,846 8,140 Amortization of goodwill ................................... 3,418 734 52 Provision for doubtful accounts ............................ 5,967 3,508 4,300 Non-cash expense for amortization of debt issuance costs ... 1,236 408 1,319 Provision in lieu of income taxes .......................... 15,645 8,151 5,587 Non-cash portion of extraordinary items .................... -- 3,152 533 Other, net ................................................. -- 416 612 ----------- ----------- ----------- 64,762 38,530 28,120 Change in operating assets and liabilities excluding effect of businesses acquired: Increase in accounts receivable ............................ (96,875) (27,219) (41,885) Decrease in inventories and contracts in progress .......... 14,654 1,236 3,029 Increase in accounts payable, accrued payroll and benefits and accrued expenses and liabilities .................... 47,706 16,841 31,740 Changes in other assets and liabilities, net ............... 5,371 5,924 4,613 ----------- ----------- ----------- Net cash provided by operating activities ...................... 35,618 35,312 25,617 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of assets ............................... 347 308 750 Purchase of property, plant and equipment .................. (10,737) (10,946) (9,753) Payments for acquisitions of businesses .................... (55,782) (28,520) (1,500) Net proceeds (disbursements) for other investments ......... 5,697 (1,073) (164) ------------ ------------ ----------- Net cash used in investing activities .......................... (60,475) (40,231) (10,667) ------------ ------------ ----------- Cash flows from financing activities: Proceeds from working capital credit lines ................. 306,400 -- 136,862 Repayments of working capital credit lines ................. (306,400) (9,497) (141,565) Net (repayments of) proceeds from long-term debt and capital lease obligations ............................... (7,012) (1,840) 221 Repayment and redemption of Series C Notes ................. -- (61,854) (11,920) Net proceeds from exercise of stock options ................ 221 518 427 Premiums paid on early extinguishment of debt .............. -- (2,437) -- Repayment and redemption of Supplemental SellCo Note ....... -- (5,464) -- Issuance of convertible subordinated notes ................. -- 115,000 -- Net proceeds from exercise of common stock warrants ........ 10,015 -- -- Net proceeds from issuance of common stock ................. -- 22,485 -- Purchase of common stock ................................... (2,868) (13,968) -- Debt issuance costs ........................................ -- (4,347) (304) ----------- ------------ ------------ Net cash provided by (used in) financing activities ............ 356 38,596 (16,279) ----------- ----------- ------------ (Decrease) increase in cash and cash equivalents ............... (24,501) 33,677 (1,329) Cash and cash equivalents at beginning of year ................. 83,053 49,376 50,705 ----------- ----------- ----------- Cash and cash equivalents at end of year ....................... $58,552 $83,053 $49,376 =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 23 EMCOR Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (In thousands)
Accumulated Total other (Accumulated stock- comprehensive deficit) holders' Common Capital income (loss) retained Treasury Comprehensive equity stock Warrants surplus (1) earnings stock income ------------------------------------------------------------------------------------------------ Balance, December 31, 1996 $ 83,883 $95 $ 2,154 $81,672 $1,378 $ (1,416) -- Net income 7,577 -- -- -- -- 7,577 -- $ 7,577 Foreign currency translation adjustments (1,573) -- -- -- (1,573) -- -- (1,573) ----------- Comprehensive income -- -- -- -- -- -- -- $6,004 =========== Provision in lieu of income taxes, net of benefit of extraordinary item of $578 5,009 -- -- 5,009 -- -- -- Common stock issued under stock option plans 427 1 -- 426 -- -- -- --------------------------------------------------------------------------------- Balance, December 31, 1997 95,323 96 2,154 87,107 (195) 6,161 -- Net income 12,315 -- -- -- -- 12,315 -- $12,315 Foreign currency translation adjustments (1,627) -- -- -- (1,627) -- -- (1,627) ------------ Comprehensive income -- -- -- -- -- -- -- $10,688 ============ Provision in lieu of income taxes, net of benefit of extraordinary item of $3,381 4,770 -- -- 4,770 -- -- -- Issuance of common stock 22,485 11 -- 22,474 -- -- -- Common stock issued under stock option plans 518 2 -- 516 -- -- -- Treasury stock, at cost (13,968) -- -- -- -- -- (13,968) --------------------------------------------------------------------------------- Balance, December 31, 1998 119,816 109 2,154 114,867 (1,822) 18,476 (13,968) Net income 27,821 -- -- -- -- 27,821 -- $27,821 Foreign currency translation adjustments (401) -- -- -- (401) -- -- (401) ------------ Comprehensive income -- -- -- -- -- -- -- $27,420 ============ Provision in lieu of income taxes 15,645 -- -- 15,645 -- -- -- Common stock issued pursuant to warrants exercised 10,015 7 (1,190) 11,198 -- -- -- Value of expired warrants -- -- (964) 964 -- -- -- Common stock issued under stock option plans 221 1 -- 220 -- -- -- Treasury stock, at cost (2,868) -- -- -- -- -- (2,868) --------------------------------------------------------------------------------- Balance, December 31, 1999 $170,249 $117 -- $142,894 $(2,223) $46,297 $(16,836) =================================================================================
(1) Represents cumulative foreign currency translation adjustments. The accompanying notes to the consolidated financial statements are an integral part of these statements. 24 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - NATURE OF OPERATIONS EMCOR Group, Inc., a Delaware corporation, and subsidiaries ("EMCOR") is the largest mechanical and electrical construction and facilities services firm in the United States and Canada and one of the largest in the United Kingdom. EMCOR specializes in the design, installation, integration, start-up, operation and maintenance of: (1) distribution systems for electrical power, including power cables, conduits, distribution panels, transformers, generators, uninterruptible power supply systems and related switch gear and controls; (2) lighting systems, including fixtures and controls; (3) low-voltage systems, including fire alarm, security and process control systems; (4) voice and data communications systems, including fiber-optic and low voltage copper cabling; (5) heating, ventilation, air conditioning, refrigeration and clean room process ventilation systems; and (6) plumbing, process and high-purity piping systems. EMCOR provides mechanical and electrical construction services and facilities services directly to corporations, municipalities and other governmental entities, owners/developers, and tenants of buildings. It also provides these services indirectly by acting as a subcontractor to construction managers, general contractors, systems suppliers and other subcontractors. Mechanical and electrical construction services often fall into one of two categories: (1) large installation projects with contracts often in the multi-million dollar range and (2) smaller installation projects typically involving fit-out renovations and retrofit work. In addition, EMCOR also provides services needed to support a customer's facilities not related to construction projects. These services, frequently referred to as facilities services, include customer based operations and maintenance, mobile maintenance and service, small modification and retrofit projects, consulting, program development and management for energy systems, and maintenance of facilities. These services are provided to a wide range of commercial, industrial, and institutional buildings including facilities at which EMCOR provided construction services and at which construction services were provided by others. Facilities services are frequently bundled to provide integrated service packages and may include services in addition to EMCOR's core mechanical and electrical services. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of EMCOR and its majority-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. Investments over which EMCOR exercises significant influence, but does not control (generally a 20% to 50% ownership interest), are accounted for using the equity method of accounting. Principles of Preparation The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires EMCOR to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications of prior years data have been made in the accompanying consolidated financial statements where appropriate to conform to the current presentation. Revenue Recognition Revenues from long-term contracts are recognized on the percentage-of-completion method. Percentage-of-completion is measured principally by the percentage of costs incurred and accrued to date for each contract to the estimated total costs for each contract at completion. Certain of EMCOR's electrical contracting business units measure percentage-of-completion by the percentage of labor costs incurred to date for each contract to the estimated total labor costs for such contract. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. In forecasting ultimate profitability on certain contracts, estimated recoveries are included for work 25 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) performed under customer change orders to contracts for which firm prices have not yet been negotiated. Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will be revised in the near-term. Such revisions to costs and income are recognized in the period in which the revisions are determined. Costs and estimated earnings on uncompleted contracts Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues have been recorded but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Also included in costs and estimated earnings on uncompleted contracts are amounts EMCOR seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to both scope and price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). These amounts are recorded at their estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on the construction costs incurred in connection with these amounts. Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded unapproved change orders may be made in the near-term. Claims made by EMCOR involve negotiation and, in certain cases, litigation. EMCOR expenses litigation costs as incurred, although it may seek to recover these costs as part of the claim. EMCOR believes that it has established legal basis for pursuing recovery of recorded claims, and it is management's intention to pursue and litigate these claims, if necessary, until a decision or settlement is reached. Claims also involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded claims may be made in the near-term. Claims against EMCOR are recognized when a loss is considered probable and amounts are reasonably determinable. Costs and estimated earnings on uncompleted contracts and related amounts billed as of December 31, 1999 and 1998 are as follows (in thousands):
1999 1998 ------------- ------------- Costs incurred on uncompleted contracts .................... $4,901,702 $2,737,507 Estimated earnings ......................................... 410,755 202,211 ------------- ------------- 5,312,457 2,939,718 Less: billings to date ..................................... 5,391,561 2,983,243 ------------- ------------- $ (79,104) $ (43,525) ============= =============
Such amounts are included in the accompanying Consolidated Balance Sheets at December 31, 1999 and 1998 under the following captions (in thousands):
1999 1998 ------------- ------------- Costs and estimated earnings in excess of billings on uncompleted contracts .................................... $137,048 $ 91,569 Billings in excess of costs and estimated earnings on uncompleted contracts .................................... (216,152) (135,094) ------------- ------------- $ (79,104) $ (43,525) ============= =============
26 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) As of December 31, 1999 costs and estimated earnings in excess of billings on uncompleted contracts included unbilled revenues for unapproved change orders of approximately $22.7 million and claims of approximately $17.8 million. In addition, accounts receivable as of December 31, 1999 includes claims and contractually billed amounts related to such contracts of approximately $28.3 million. Claims and related amounts included in accounts receivable aggregated approximately $29.0 million as of December 31, 1998. Generally, contractually billed amounts will not be paid by the customer to EMCOR until final resolution of related claims. Classification of Contract Amounts In accordance with industry practice, EMCOR classifies as current all assets and liabilities related to the performance of long-term contracts. The contracting cycle for certain long-term contracts may extend beyond one year and, accordingly, collection or payment of amounts related to these contracts may extend beyond one year. Accounts receivable at December 31, 1999 and 1998 included $128.7 million and $91.6 million, respectively, of retainage billed under terms of the contracts. EMCOR estimates that approximately 85% of retainage recorded at December 31, 1999 will be collected during 2000. Cash and cash equivalents For purposes of the consolidated financial statements, EMCOR considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. EMCOR maintains a centralized cash management program whereby its excess cash balances are invested in high quality, short-term money market instruments which are considered cash equivalents. At times, cash balances in EMCOR's bank accounts may exceed federally insured limits. Inventories Inventories, which consist primarily of construction materials, are stated at the lower of cost or market. Cost is determined principally using average cost. Investments, notes and other long-term receivables Investments, notes and other long-term receivables at December 31, 1999 was $17.4 million, representing a $10.4 million increase compared to $7.0 million at December 31, 1998, and primarily consists of investments in joint ventures accounted for using the equity method of accounting. The $10.4 million increase was primarily attributable to such investments of a company acquired by EMCOR in 1999. Property, plant and equipment Property, plant and equipment is stated at cost. Depreciation is recorded principally using the straight-line method over estimated useful lives ranging from 3 to 40 years. Property, plant and equipment in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 1999 and 1998 (in thousands):
1999 1998 ---------- ----------- Machinery and equipment ...................................... $36,814 $33,894 Furniture and fixtures ....................................... 9,723 6,953 Land, buildings and leasehold improvements ................... 20,510 15,566 ---------- ----------- 67,047 56,413 Accumulated depreciation and amortization .................... (30,538) (24,315) ---------- ----------- $36,509 $32,098 ========== ===========
27 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) Goodwill Goodwill at December 31, 1999 and 1998 primarily consisted of approximately $68.0 million and $22.8 million, respectively, of the excess of cost over fair market value of net identifiable assets of companies acquired in purchase transactions. Goodwill is being amortized using the straight-line method over periods ranging from 5 to 20 years. At the end of each quarter, EMCOR reviews events and changes in circumstances to determine whether the recoverability of the carrying value of Goodwill should be reassessed. Should events or circumstances indicate that the carrying value may not be recoverable based on undiscounted future cash flows, an impairment loss measured by the difference between the discounted future cash flows (or another acceptable method for determining fair value) and the carrying value of Goodwill would be recognized by EMCOR. Through December 31, 1999, no adjustment for the impairment of Goodwill carrying value has been required. Insurance Reserves EMCOR's insurance liability is determined actuarially based on claims filed and an estimate of claims incurred but not yet reported. At December 31, 1999 and 1998, the estimated current portion of the discounted insurance liability was included in "Other accrued expenses and liabilities" in the accompanying Consolidated Balance Sheets. The non-current portion of the discounted insurance liability was included in "Other long-term obligations". Fair Value of Financial Instruments EMCOR's financial instruments include accounts receivable, investments, notes and other long-term receivables, long-term debt, foreign currency contracts and other financing commitments whose carrying values approximate their fair values. At December 31, 1999, the fair value of EMCOR's 5.75% Convertible Subordinated Notes was $97.8 million compared to the carrying value of $115.0 million. The fair value was estimated based on quoted market prices and market interest rates as of December 31, 1999. Foreign Operations The financial statements and transactions of EMCOR's foreign subsidiaries are maintained in their functional currency and translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation". Translation adjustments have been accumulated as a separate component of Stockholders' equity as Accumulated other comprehensive income (loss). Income Taxes EMCOR accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach which requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. 28 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) Foreign Exchange Contracts Gains and losses on contracts designated as hedges of net investments in foreign subsidiaries are recognized in the Consolidated Statements of Stockholders' Equity and Comprehensive Income as a component of Accumulated other comprehensive income (loss). As of December 31, 1999, EMCOR had one forward contract that was designated as, and was effective as, an economic hedge. The amount of this forward contract was not material to the Consolidated Financial Statements. Valuation of Stock Option Grants EMCOR accounts for its stock option plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). See Note I for pro forma information relating to treatment of EMCOR's stock option plans under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133", establishes for fiscal quarters of fiscal years beginning after June 15, 2000 accounting and reporting standards requiring derivative instruments, as defined, to be measured in the financial statements at fair value. SFAS 133 also requires that changes in the derivative instruments' fair value be recognized currently in earnings unless certain accounting criteria are met. EMCOR does not expect the provision of SFAS 133 to have a significant effect on the financial condition or results of operations of EMCOR. NOTE C - ACQUISITIONS OF BUSINESSES During 1999, EMCOR acquired two businesses and paid additional consideration by reason of earnouts on prior acquisitions for an aggregate of $55.8 million in cash. During 1998, EMCOR acquired ten businesses for an aggregate purchase price of $36.8 million, $28.5 million of which was paid in cash and $8.3 million was paid in notes made by EMCOR. The purchase price of certain transactions are subject to finalization based on certain contingencies provided for in the purchase agreements. These acquisitions were accounted for by the purchase method, and the purchase price has been allocated to the assets acquired and liabilities assumed, based upon the estimated fair values of these assets and liabilities at the dates of acquisition. The purchase prices of these transactions are of a preliminary basis and are subject to certain purchase accounting adjustments. Goodwill, representing the excess purchase price over the fair value of amounts assigned to the net tangible assets acquired, was $68.0 million and $22.7 million at December 31, 1999 and 1998, respectively, and is being amortized over periods of 5 to 20 years. Amortization expense for the year ended December 31, 1999, 1998 and 1997 was $3.4 million, $0.7 million and $0.1 million, respectively. The pro forma effect on EMCOR's revenues, net income and earnings per share for 1999, 1998 and 1997, as though the acquisitions occurred as of January 1 of each year, was not material. 29 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE D - EARNINGS PER SHARE The following tables summarize EMCOR's calculation of Basic and Diluted Earnings per Share ("EPS") for the years ended December 31, 1999, 1998 and 1997:
Income Shares Per Share 1999 (Numerator) (Denominator) Amount ---- -------------- --------------- ---------- Basic EPS Income before extraordinary item available to common stockholders ........................................... $27,821,000 9,732,930 $2.86 ========== Effect of Dilutive Securities: Convertible Subordinated Notes, including assumed interest savings, net of tax............................ 4,099,750 4,206,291 Options .................................................... -- 245,893 Warrants ................................................... -- 259,708 -------------- --------------- Diluted EPS ................................................ $31,920,750 14,444,822 $2.21 ============== =============== ==========
Income Shares Per Share 1998 (Numerator) (Denominator) Amount ---- -------------- --------------- ---------- Basic EPS Income before extraordinary item available to common stockholders ........................................... $17,092,000 10,232,527 $1.67 ========== Effect of Dilutive Securities: Convertible Subordinated Notes including assumed interest savings, net of tax ........................... 2,785,000 2,952,672 Options .................................................... -- 215,531 Warrants ................................................... -- 228,995 -------------- --------------- Diluted EPS ................................................ $19,877,000 13,629,725 $1.46 ============== =============== ==========
Income Shares Per Share 1997 (Numerator) (Denominator) Amount ---- -------------- --------------- ---------- Basic EPS Income before extraordinary item available to common stockholders ........................................... $8,581,000 9,547,869 $0.90 ========== Effect of Dilutive Securities: Options .................................................... -- 305,336 Warrants ................................................... -- 321,690 -------------- --------------- Diluted EPS ................................................ $8,581,000 10,174,895 $0.84 ============== =============== ==========
The number of EMCOR's options granted, which were excluded from the computation of Diluted EPS for the years ended December 31, 1999, 1998 and 1997 because they would be antidilutive, were 211,720, 306,785 and none, respectively. 30 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE E - CURRENT DEBT 1998 Credit Facility On December 22, 1998, EMCOR and certain of its subsidiaries amended and restated the June 19, 1996 credit facility; the amended credit facility provides EMCOR with a credit facility for borrowings of up to $150.0 million. The amended credit facility, which has an expiration date of June 30, 2002, is guaranteed by certain direct and indirect subsidiaries of EMCOR. It is secured by substantially all of the assets of EMCOR and those subsidiaries, and it provides for borrowing capacity available in the form of revolving loans and/or letters of credit. The revolving loans bear interest at (1) a rate which is the prime commercial lending rate announced by Harris Trust and Savings Bank from time to time (8.5% at December 31, 1999) plus 0% to 0.5%, based on certain financial tests or (2) at a LIBOR rate (6.0% at December 31, 1999) plus 1.25% to 2.0% based on certain financial tests. The interest rates in effect at December 31, 1999 were 8.5% and 7.25%, respectively. Letters of credit fees issued under the credit facility ranging from 0.5% to 2.0% are charged based on type of letters of credit issued and certain financial tests. As of December 31, 1999 and 1998, EMCOR had approximately $17.4 million and $30.2 million of letters of credit outstanding, respectively. No revolving loans were outstanding under the 1998 Credit Facility at December 31, 1999 and 1998. 1996 Credit Facility On June 19, 1996, EMCOR and its subsidiary Dyn Specialty Contracting, Inc. entered into a credit agreement with Harris Trust and Savings Bank providing EMCOR with a working capital credit facility for borrowings up to $100.0 million for a three-year period. This agreement was amended and restated on December 22, 1998. Foreign Borrowings In October 1997, EMCOR's Canadian subsidiary, Comstock Canada Ltd., renewed a credit agreement with a bank providing for an overdraft facility of up to Cdn. $0.5 million. The facility is secured by a standby letter of credit and provides for interest at the bank's prime rate (6.5% at December 31, 1999). There were no borrowings outstanding under this facility at December 31, 1999 and 1998. The Canadian subsidiary may utilize EMCOR's 1998 credit facility for any future working capital requirements. 31 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE F - LONG-TERM DEBT Long-term debt in the accompanying Consolidated Balance Sheets consisted of the following amounts as of December 31, 1999 and 1998 (in thousands):
1999 1998 ----------- ----------- Convertible Subordinated Notes at 5.75% due 2005 .............................. $115,000 $115,000 Note Payable at 6.0%, due 2000 ................................................ 1,150 2,150 Note Payable, due 1999 ........................................................ -- 6,164 Capitalized Lease Obligations at weighted average interest rates from 2.9% to 11.0%, payable in varying amounts through 2004 ............................. 554 837 Other, at weighted average interest rates of approximately 10.0%, payable in varying amounts through 2016 ............................................... 1,534 1,086 ----------- ----------- 118,238 125,237 Less : current maturities .................................................. 2,235 7,963 ----------- ----------- $116,003 $117,274 =========== ===========
Convertible Subordinated Notes On March 18, 1998, EMCOR sold, pursuant to an underwritten public offering, $100.0 million principal amount of 5.75% Convertible Subordinated Notes ("Subordinated Notes"). On March 24, 1998, the underwriter of the Subordinated Notes offering exercised in full its over-allotment option to purchase an additional $15.0 million of Subordinated Notes, and accordingly, Subordinated Notes in the additional principal amount of $15.0 million were issued. The Subordinated Notes will mature on April 1, 2005 and are general, unsecured obligations of EMCOR, subordinated in right to all existing and future Senior Indebtedness (as defined in the indenture pursuant to which Subordinated Notes were issued (the "Subordinated Indenture") of EMCOR. The Subordinated Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the repurchase of securities of EMCOR or the incurrence of Indebtedness (as defined in the Subordinated Indenture) or Senior Indebtedness. Holders of the Subordinated Notes have the right at any time to convert the Subordinated Notes into Common Stock of EMCOR at a conversion price of $27.34 per share. Series C Notes On December 15, 1994, EMCOR issued approximately $62.8 million principal amount of Series C Notes. Interest on the Series C Notes was payable semiannually through June 15, 1996 by the issuance of additional Series C Notes and was thereafter payable quarterly in cash until redemption. The Series C Notes were unsecured indebtedness of EMCOR and were subordinate to indebtedness under EMCOR's 1996 credit facility. The Series C Notes were recorded at a discount to their face amount to yield an estimated effective interest rate of 14.0%. On June 3, 1997, EMCOR purchased $1.0 million of Series C Notes and retired such notes. On June 27, 1997, EMCOR called for the partial redemption of approximately $10.9 million principal amount of Series C Notes. In accordance with the Indenture governing the Series C Notes, the redemption price of the Series C Notes was 105% of the principal amount redeemed. Accordingly, EMCOR recorded an extraordinary loss of approximately $1.0 million related to the early retirement of debt. The extraordinary loss consisted primarily of the write-off of the associated debt discount plus premiums and costs associated with the redemption, net of income tax benefits of approximately $0.7 million. 32 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE F - LONG-TERM DEBT- (Continued) On March 18, 1998, EMCOR called for redemption approximately $61.9 million principal amount of Series C Notes and irrevocably funded such amounts, together with a redemption premium, with the trustee of the Series C Notes. In accordance with the Indenture governing the Series C Notes, the redemption price of the Series C Notes was 104% of the principal amount redeemed. Accordingly, EMCOR recorded an extraordinary loss of $4.8 million net of income taxes related to the early retirement of debt. The extraordinary loss consisted primarily of the write-off of the associated debt discount plus the redemption premium and costs associated with the redemption, net of income tax benefits. Supplemental SellCo Note On December 15, 1994, EMCOR issued to its wholly-owned subsidiary SellCo Corporation ("SellCo") its 8.0% promissory note in the principal amount of approximately $5.5 million (the "Supplemental SellCo Note"). The Supplemental SellCo Note provided that it matured on the earlier of (i) December 15, 2004 or (ii) one day prior to the date on which the SellCo Notes (hereafter defined) are deemed canceled. The Supplemental SellCo Note was recorded at a discount to its face amount to yield an estimated effective interest rate of 14.0%. In June 1998, EMCOR prepaid in full, including accrued interest thereon, the Supplemental SellCo Note. SellCo Notes On December 15, 1994, SellCo issued approximately $48.1 million principal amount of 12.0% Subordinated Contingent Payments Notes, due 2004, (the "SellCo Notes"). Interest was payable semiannually in additional SellCo Notes. Net Cash Proceeds (as defined in the Indenture pursuant to which the SellCo Notes were issued) from the sales of stock or assets of SellCo subsidiaries were to be used to redeem SellCo Notes. The SellCo Notes were not obligations of EMCOR and, accordingly, were not included in the accompanying Consolidated Balance Sheets as of December 31, 1999 and 1998. Since the date of issuance, approximately $20.0 million of the SellCo Notes have been redeemed with proceeds from the sale of stock and assets of SellCo subsidiaries and the prepayment by EMCOR of the Supplemental SellCo Note. The SellCo Notes mature on December 15, 2004 if not deemed canceled at an earlier date pursuant to the Indenture. Notes Payable for Acquisitions In 1998, EMCOR issued notes in connection with the acquisition of two companies. A principal payment of $1.0 million was made in August 1999 in respect of one note issued in August 1998, and a principal payment of the balance of $1.15 million is to be made in respect of that note in August 2000. Interest on the note is payable together with payments of principal. The other note, issued in the principal amount of $6.2 million in December 1998, was paid in full in January 1999. Capitalized Lease Obligations See Note K in the Notes to Consolidated Financial Statements. 33 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE F - LONG-TERM DEBT- (Continued) Other Long-Term Debt Other long-term debt consists primarily of loans for real estate, office equipment, automobiles and building improvements. As of December 31, 1999 and 1998, respectively, other long-term debt, excluding current maturities, totaling $1.5 million and $1.1 million was owed by certain of EMCOR's subsidiaries. The aggregate amount of other long-term debt maturing during the next five years is approximately: $0.6 million in 2000, $0.2 million in 2001, $0.1 million in each of 2002, 2003 and 2004, and $0.4 million thereafter. NOTE G - INCOME TAXES EMCOR files a consolidated federal income tax return including all its U.S. subsidiaries. At December 31, 1999, EMCOR had net operating loss carryforwards ("NOLs") for U.S. income tax purposes of approximately $110.0 million, which expire in the years 2007 through 2012. The NOLs are subject to review by the Internal Revenue Service. Future changes in ownership of EMCOR, as defined by Section 382 of the Internal Revenue Code, could limit the amount of NOLs available for use in any one year. EMCOR adopted Fresh-Start Accounting in connection with EMCOR's reorganization in December 1994. As a result, the tax benefit of any net operating loss carryforwards or net deductible temporary differences which existed as of December 15, 1994 will result in a charge to the tax provision (provision in lieu of income taxes) and be allocated to reorganization value in excess of amounts allocable to identifiable assets established in connection with EMCOR's emergence from bankruptcy and to capital surplus. For the year ended December 31, 1996, EMCOR allocated approximately $4.5 million of its tax provision to reorganization value in excess of amounts allocable to identifiable assets, thereby reducing this balance to zero. The remaining utilization of NOLs and other deferred tax assets, approximately $15.6 million, $8.2 million and $5.6 million for the years ended December 31, 1999, 1998 and 1997, respectively, have been applied to capital surplus for the years then ended. 34 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE G - INCOME TAXES -(Continued) The income tax provision in the accompanying Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 consists of (in thousands):
1999 1998 1997 ----------- ------------ ----------- Current: Federal .......................................... $ 2,482 $ 1,549 $ 396 State and local .................................. 2,000 788 580 Foreign .......................................... 630 2,161 1,418 ----------- ------------ ----------- 5,112 4,498 2,394 ----------- ------------ ----------- Deferred: Foreign .......................................... 1,100 -- (1,100) ----------- ------------ ----------- Provision in lieu of income taxes 15,645 8,151 5,587 ----------- ------------ ----------- $21,857 $12,649 $6,881 =========== ============ ===========
Factors accounting for the variation from U.S. statutory income tax rates relating to continuing operations for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 ----------- ------------ ----------- Federal income taxes at the statutory rate ............ $17,387 $10,409 $5,412 State and local income taxes, net of federal tax benefits 2,990 1,058 686 Foreign income taxes .................................. 271 1,247 1,630 Non-deductible goodwill amortization................... 843 101 -- Other ................................................. 366 (166) (847) ----------- ------------ ----------- $21,857 $12,649 $6,881 =========== ============ ===========
The components of the net deferred income tax asset included in "Other Assets" in the accompanying Consolidated Balance Sheets for the years ended December 31, 1999, and 1998 are as follows (in thousands):
1999 1998 ------------ ------------- Deferred tax assets: Net operating loss carryforward .............................. $ 42,166 $ 57,998 Excess of amounts expensed for financial statement purposes over amounts deducted for income tax purposes ............ 64,149 30,177 Other ........................................................ 2,899 2,899 ------------ ------------- Total deferred tax asset ..................................... 109,214 91,074 ------------ ------------- Deferred tax liabilities: Cost capitalized for financial statement purposes and deducted for income tax purposes ................................... 20,433 17,823 ------------ ------------- Total deferred tax liability ................................. 20,433 17,823 ------------ ------------- Net deferred tax asset before valuation allowance ............ 88,781 73,251 Valuation allowance for net deferred tax asset ............... (88,781) (72,151) ------------ ------------- Net deferred tax asset ....................................... $ -- $ 1,100 ============ =============
35 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE G - INCOME TAXES -(Continued) Income before income taxes and extraordinary items for the years ended December 31, 1999, 1998, and 1997 consists of the following (in thousands):
1999 1998 1997 ---- ---- ---- United States ....................................... $42,714 $ 27,130 $ 19,207 Foreign ............................................. 6,964 2,611 (3,745) ---------- ----------- ----------- $49,678 $ 29,741 $ 15,462 ========== =========== ===========
NOTE H - COMMON STOCK On March 18, 1998, EMCOR sold, pursuant to an underwritten public offering, 1,100,000 of its common stock at a price of $21.875 per share. As part of a program previously authorized by the Board of Directors, EMCOR purchased 174,095 and 957,900 shares of its common stock during 1999 and 1998, respectively. The aggregate amount of $16.8 million paid for those shares has been classified as "Treasury Stock, at Cost" in the Consolidated Balance Sheet at December 31, 1999. EMCOR management is authorized to repurchase up to $20.0 million of EMCOR's common stock under this program. NOTE I - STOCK OPTIONS AND WARRANTS EMCOR has stock based compensation plans under which employees receive stock options and outside directors receive stock options or shares of common stock. During 1999, certain stock options were granted by the board of directors outside of established stock option plans. A summary of the general terms of the stock option and stock unit plans, plus other stock option grants follows:
Authorized Exercise Shares Vesting Expiration Price --------------- ----------------- ---------------- --------------- 1994 Management Stock Option Plan 1,000,000 Generally, Ten years Fair market (the "1994 Plan") 33 1/3% on each from grant value of anniversary of date common stock grant date on grant date 1995 Non-Employee Directors' Non- 200,000 100% on grant date Ten years Fair market Qualified Stock Option Plan from grant value of (the "1995 Plan") date common stock on grant date 1997 Non-Employee Directors' Non- 300,000 (1) Five years Fair market Qualified Stock Option Plan from grant value of (the "1997 Directors' Stock date common stock Option Plan") on grant date (3) 1997 Stock Plan for Directors (the 150,000 (2) Five years Fair market "1997 Directors' Stock Plan") from grant value of date common stock on grant date(4) Other Stock Option Grants Not applicable Generally, either Ten years Fair market 100% on first from grant value of anniversary of date common stock grant date or 33 on grant date 1/3% on each anniversary of grant date
36 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE I - STOCK OPTIONS AND WARRANTS -(Continued) - -------------------- (1) At the election of an individual serving as a Director, the individual may elect to receive one-third, two-thirds or all of his retainer for a calendar year in the form of stock options. Such options become exercisable quarterly over the calendar year. In addition, the individual will receive additional stock options equal to the product of .5 times the amount of stock options otherwise issued as a result of his election. (2) At the election of an individual serving as a Director, the individual may elect to receive one-third, two-thirds or all of his retainer for a calendar year in the form of deferred stock units equal in value to the retainer. In addition, the individual will receive additional deferred stock units equal to .2 times the amount of deferred stock units otherwise issued as a result of his election. Following termination of Board service, the director receives shares of common stock equal to the number of deferred stock units. (3) The grant date is the first business day of a calendar year for individuals who are serving as Directors as of such date, and on the date. (4) The grant date is the first business day of a calendar year for individuals who are serving as Directors as of such date. The following table summarizes EMCOR's stock option activity since December 31, 1996.
1997 Directors' Stock 1997 Directors' Other Stock Option 1994 Plan 1995 Plan Option Plan Stock Plan Grants -------------------- ------------------- --------------------- ------------------- -------------------- Weighted Weighted Weighted Weighted Weighted Average Average Average Average Average Shares Price Shares Price Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- Balance December 31, 1996 628,236 $5.33 52,500 $10.21 -- -- -- -- -- -- Granted............... 366,000 $19.82 18,000 $16.31 -- -- -- -- -- -- Forfeited............. (2,668) $5.13 -- -- -- -- -- -- -- -- Exercised............. (73,191) $5.13 (3,000) $17.13 -- -- -- -- -- -- ---------- ---------- --------- --------- -------- Balance December 31, 1997 918,377 $11.12 67,500 $11.53 -- -- -- -- -- -- Granted............... 90,000 $20.06 18,000 $19.63 35,785 $19.94 1,800 $20.00 -- -- Forfeited............. (205,000) $19.73 -- -- -- -- -- -- -- -- Exercised............. (81,676) $5.29 -- -- -- -- -- -- -- -- ---------- ---------- --------- --------- -------- Balance December 31, 1998 721,701 $10.44 85,500 $13.24 35,785 $19.94 1,800 $20.00 -- -- Granted............... -- -- 18,000 $22.13 40,968 $16.19 330 $19.63 315,000 $18.49 Forfeited............. -- -- -- -- -- -- -- -- -- -- Exercised............. (16,933) $9.13 (10,500) $6.34 -- -- (1,200) $20.00 -- -- ---------- ---------- --------- --------- -------- Balance December 31, 1999 704,768 $10.47 93,000 $15.74 76,753 $17.94 930 $19.87 315,000 $18.49 ========== ========== ========= ========= ========
At December 31, 1999, 1998 and 1997, approximately 943,000, 642,000 and 386,000 options were exercisable, respectively. The weighted average exercise price of exercisable options at December 31, 1999, 1998 and 1997 was approximately $12.28, $8.43 and $6.46, respectively. 37 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE I - STOCK OPTIONS AND WARRANTS -(Continued) The following table summarizes information about EMCOR's stock options at December 31, 1999:
Options Outstanding Options Exercisable ----------------------------------------------------- --------------------------- Range of Weighted-Average Weighted-Average Weighted-Average Exercise Prices Number Remaining Life Exercise Price Number Exercise Price --------------- ------ -------------- -------------- ------ -------------- $4.75-$5.13 450,767 5.26 Years $4.96 450,767 $4.96 $9.38-$9.63 15,000 5.88 Years $9.48 15,000 $9.48 $14.13-$20.00 693,351 7.97 Years $18.77 456,029 $19.15 $20.38-$22.13 31,333 8.94 Years $21.39 21,334 $21.86
The weighted average fair value of options granted during 1999, 1998 and 1997 were $18.41, $15.18 and $14.67, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997: risk-free interest rates of 4.6% to 5.7% (representing the risk-free interest rate at the date of the grant); expected dividend yields of zero percent; expected terms of 3.3 to 6.5 years; and expected volatility of 56.5% for options granted prior to December 31, 1996, and 73.6%, 87.3% and 79.8% for options granted during 1999, 1998 and 1997, respectively. EMCOR applies APB 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized in the accompanying Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 for options granted during those years. Had compensation cost for these plans been determined consistent with SFAS 123, EMCOR's net income, Basic EPS and Diluted EPS would have been reduced from the following as reported amounts to the following pro forma amounts (in thousands, except per share amounts):
1999 1998 1997 ---- ---- ---- Net income: As reported.................................................. $27,821 $12,315 $7,577 Pro forma.................................................... $25,597 $10,176 $6,842 Basic EPS: As reported.................................................. $ 2.86 $ 1.20 $0.79 Pro forma.................................................... $ 2.63 $ 0.99 $0.72 Diluted EPS: As reported.................................................. $ 2.21 $ 1.11 $0.74 Pro forma.................................................... $ 2.06 $ 0.75 $0.67
Warrants On December 15, 1994, EMCOR issued to the holders of $7,040,000 principal amount of its pre-bankruptcy petition 7.75% Convertible Subordinated Debentures and $9,600,000 principal amounts of its pre-bankruptcy petition 12.0% Subordinated Notes, their pro rata share of each of two series of five-year Warrants to purchase shares of Common Stock, namely Series X Warrants and Series Y Warrants, with an exercise price of $12.55 per share and $17.55 per share, respectively. In addition, approximately 28,000 Series X Warrants and 28,000 Series Y Warrants, were issued to Belmont Capital Partners II, L. P. as a portion of additional interest under a debtor-in-possession credit facility. During November and December 1999, 600,603 Series X and 141,944 Series Y Warrants were exercised, respectively. All unexercised Series X and Series Y Warrants expired on December 15, 1999. 38 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE J - RETIREMENT PLANS EMCOR's United Kingdom subsidiary has a defined benefit pension plan covering substantially all eligible employees. The benefits under the plan are based on wages and years of service with the subsidiary. EMCOR's policy is to fund the minimum amount required by law. The change in benefit obligation and plan assets for the years ended December 31, 1999 and 1998 consists of the following components (in thousands):
1999 1998 ---- ---- Change in pension benefit obligation Benefit obligation at beginning of year ......... $87,574 $62,597 Service cost .................................... 6,285 4,994 Interest cost ................................... 5,243 5,554 Changes in actuarial assumptions ................ 3,965 16,679 Benefits paid ................................... (2,881) (2,870) Foreign currency exchange rate changes .......... (2,969) 620 ------------- ------------ Benefit obligation at end of year ............... $97,217 $87,574 ------------- ------------ Change in pension plan assets Fair value of plan assets at beginning of year... $82,428 $69,078 Actual return on plan assets .................... 17,810 9,666 Employer contributions .......................... 4,529 3,763 Plan participants' contributions ................ 2,155 2,107 Benefits paid ................................... (2,881) (2,870) Foreign currency exchange rate changes .......... (2,794) 684 ------------- ------------ Fair values of plan assets at end of year ....... $101,247 $82,428 ------------- ------------ Funded status ................................... $ 4,030 $(5,146) Unrecognized transition amount .................. (383) (480) Unrecognized prior service cost ................. 518 615 Unrecognized losses/(gains) ..................... (6,338) 3,671 ------------- ------------ Net amount recognized ........................... $ (2,173) $(1,340) ============= ============ Amounts recognized in the Consolidated Financial Statements Employer contributions .......................... $ 4,529 $3,763 Net periodic pension benefit cost ............... (5,408) (3,318) Accrued pension cost brought forward ............ (1,340) (1,768) Foreign currency exchange rate changes .......... 46 (17) ------------- ------------ Net amount recognized as accrued pension liability $ (2,173) $(1,340) ============= ============
The assumptions used as of December 31, 1999, 1998 and 1997 in determining pension cost and liability shown above were as follows:
1999 1998 1997 ----------- ---------- --------- Discount rate ............................... 6.0% 6.0% 8.5% Annual rate of salary provision ............. 4.0% 6.5% 6.5% Annual rate of return on plan assets ........ 7.5% 10.0% 10.0%
For measurement purposes, a 2.5% and 5.0% annual rate of increase in the per capita cost of covered pension benefits was assumed for 1999 and 1998, respectively. 39 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE J - RETIREMENT PLANS -(Continued) The components of net periodic pension benefit cost for the years ended December 31, 1999, 1998 and 1997 were as follows (in thousands):
1999 1998 1997 ----------- --------- ---------- Service cost ............................... $6,285 $4,994 $4,224 Interest cost .............................. 5,243 5,554 4,828 Expected return on plan assets ............. (17,810) (9,666) (9,750) Net amortization of prior service cost and actuarial (gain)/loss ................... 11,690 2,436 3,988 ----------- --------- ---------- Net periodic pension benefit cost .......... $5,408 $3,318 $3,290 =========== ========= ==========
EMCOR contributes to various union pension funds based upon wages paid to union employees of EMCOR. Such contributions approximated $71.1 million, $57.4 million and $50.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. EMCOR has a defined contribution retirement plan that covers its U.S. non-union eligible employees. Contributions to this plan are based on a percentage of the employee's base compensation. The expense recognized for the years ended December 31, 1999, 1998 and 1997, for the defined contribution plan was $2.2 million, $1.9 million and $2.6 million, respectively. NOTE K - COMMITMENTS AND CONTINGENCIES EMCOR and its subsidiaries lease land, buildings and equipment under various leases. The leases frequently include renewal options and require EMCOR to pay for utilities, taxes, insurance and maintenance expenses. Future minimum payments, by year and in the aggregate, under capital leases, non-cancelable operating leases and related sub-leases with initial or remaining terms of one or more years at December 31, 1999 are as follows (in thousands):
Capital Operating Sublease Lease Lease Income ----------- ----------- ----------- 2000............................................... $318 $23,475 $ 574 2001 .............................................. 163 19,055 656 2002 .............................................. 63 14,449 558 2003 .............................................. 50 10,296 523 2004 .............................................. 13 7,607 401 Thereafter ........................................ -- 16,930 1,932 ----------- ----------- ----------- Total minimum lease payment ....................... 607 $91,812 $4,644 =========== =========== Amounts representing interest ..................... (53) ----------- Present value of net minimum lease payments ....... $554 ===========
Rent expense for the years ended December 31, 1999, 1998 and 1997 was $15.1 million, $12.1 million and $9.8 million, respectively. Rent expense for the years ended December 31, 1999, 1998 and 1997 includes sublease rentals of $0.7 million, $0.1 million and $2.3 million, respectively. EMCOR has employment agreements with certain of its executive officers and management personnel. These agreements generally continue until terminated by the executive or EMCOR and provide for severance benefits if terminated. Certain of the agreements provide the employees with certain additional rights if a change of control (as defined) of EMCOR occurs. 40 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE K - COMMITMENTS AND CONTINGENCIES- (Continued) EMCOR is contingently liable to sureties in respect of performance and payment bonds issued by the sureties in connection with certain contracts entered into by EMCOR's subsidiaries in the normal course of their business. EMCOR has agreed to indemnify the sureties for any payments made by them in respect of such bonds. EMCOR is subject to regulation with respect to the handling of certain materials used in construction which are classified as hazardous or toxic by Federal, State and local agencies. EMCOR's practice is to avoid participation in projects principally involving the remediation or removal of such materials. However, where remediation is a required part of contract performance, EMCOR believes it complies with all applicable regulations governing the discharge of material into the environment or otherwise relating to the protection of the environment. NOTE L - ADDITIONAL CASH FLOW INFORMATION The following presents information about cash paid for interest and income taxes for the years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ----------- ---------- ---------- Cash paid during the year for: Interest ............................. $ 9,018 $10,849 $9,116 Income taxes ......................... $ 5,418 $ 1,480 $ 521
NOTE M - SEGMENT INFORMATION EMCOR adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131") in 1998. SFAS 131 changed the way EMCOR reports information about its operating segments. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. EMCOR evaluates financial performance based on the operating income of the reportable business units. EMCOR has the following reportable segments pursuant to SFAS 131: United States electrical construction and facilities services, United States mechanical construction and facilities services, Canada construction and facilities services and United Kingdom construction and facilities services. United States other services primarily represents those operations which principally provide consulting and maintenance services. Other International represents EMCOR's operations outside of the United States, Canada, and the United Kingdom, primarily in the Middle East and performing electrical construction, mechanical construction and facilities services. Inter-segment sales are not material for any of the periods presented. The Extraordinary items - loss on early extinguishment of debt, net of income taxes, of $4.8 million and $1.0 million for the years ended December 31, 1998 and 1997, respectively, are related to Corporate Administration of EMCOR. 41 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE M - SEGMENT INFORMATION- (Continued) The following presents information about industry segments and geographic areas for the years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ---- ---- ---- Revenues: United States electrical construction and facilities services ................................................ $ 993,073 $ 888,594 $ 744,996 United States mechanical construction and facilities services ................................................ 1,053,727 599,616 577,590 United States other services ............................... 96,150 14,392 3,019 ------------- ------------- ------------- Total United States Operations ............................. 2,142,950 1,502,602 1,325,605 Canada construction and facilities services................. 196,694 201,918 179,046 United Kingdom construction and facilities services......... 553,654 493,278 407,449 Other International construction and facilities services.... 664 12,576 38,768 ------------- ------------- ------------- Total Worldwide Operations ................................. $2,893,962 $2,210,374 $1,950,868 ============= ============= ============= Operating income (loss): United States electrical construction and facilities services ................................................ $ 38,485 $ 36,315 $ 28,696 United States mechanical construction and facilities services ............................................... 37,815 20,955 18,627 United States other services ............................... (4,390) (4,783) (2,103) ------------- ------------- ------------- Total United States Operations ............................. 71,910 52,487 45,220 Canada construction and facilities services................. 3,991 5,000 4,174 United Kingdom construction and facilities services......... 3,208 (876) (4,859) Other International construction and facilities services.... (355) (1,260) (1,129) Corporate Administration ................................... (20,663) (18,127) (15,992) ------------- ------------- -------------- Total Worldwide Operations ................................. 58,091 37,224 27,414 Other Corporate Items: Interest expense ........................................... (10,520) (11,041) (13,029) Interest income ............................................ 2,107 3,558 1,077 ------------- ------------- ------------- Income before taxes and extraordinary items ................ $49,678 $ 29,741 $ 15,462 ============= ============= ============= Capital expenditures: United States electrical construction and facilities services ................................................ $ 3,689 $ 2,928 $ 2,378 United States mechanical construction and facilities services ................................................ 3,012 2,473 3,507 United States other services ............................... 655 116 95 ------------- ------------- ------------- Total United States Operations ............................. 7,356 5,517 5,980 Canada construction and facilities services................. 804 990 575 United Kingdom construction and facilities services......... 2,226 3,928 2,594 Other International construction and facilities services.... 113 48 379 Corporate Administration ................................... 238 463 225 ------------- ------------- ------------- Total Worldwide Operations ................................. $10,737 $ 10,946 $ 9,753 ============= ============= ============= Depreciation and amortization: United States electrical construction and facilities services ................................................ $ 3,284 $ 3,315 $ 2,009 United States mechanical construction and facilities services ................................................ 5,083 2,664 2,143 United States other services ............................... 2,329 526 36 ------------- ------------- ------------- Total United States Operations ............................. 10,696 6,505 4,188 Canada construction and facilities services................. 680 651 1,364 United Kingdom construction and facilities services......... 2,550 3,072 2,203 Other International construction and facilities services.... 60 207 277 Corporate Administration .................................. 107 145 160 ------------- ------------- ------------- Total Worldwide Operations ................................. $14,093 $ 10,580 $ 8,192 ============= ============= =============
42 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE M - SEGMENT INFORMATION -(Continued)
1999 1998 ------------ ------------- Costs and estimated earnings in excess of billings on uncompleted contracts: United States electrical construction and facilities services.............. $ 40,353 $ 33,346 United States mechanical construction and facilities services.............. 76,628 34,830 United States other services .............................................. 3,417 1,942 ------------- ------------ Total United States Operations ............................................ 120,398 70,118 Canada construction and facilities services................................ 7,949 4,346 United Kingdom construction and facilities services........................ 8,675 17,095 Other International construction and facilities services................... 26 10 ------------- ------------ Total Worldwide Operations ................................................ $ 137,048 $ 91,569 ============= ============ Billings in excess of costs and estimated earnings on uncompleted contracts: United States electrical construction and facilities services.............. $103,278 $ 74,193 United States mechanical construction and facilities services.............. 79,535 34,977 United States other services .............................................. 1,786 1,341 ------------- ------------ Total United States Operations ............................................ 184,599 110,511 Canada construction and facilities services................................ 8,252 6,568 United Kingdom construction and facilities services........................ 18,494 16,896 Other International construction and facilities services................... 4,807 1,119 ------------- ------------ Total Worldwide Operations ................................................ $216,152 $ 135,094 ============= ============ Total assets: United States electrical construction and facilities services.............. $343,309 $ 282,580 United States mechanical construction and facilities services.............. 378,813 204,469 United States other services .............................................. 58,950 25,725 ------------- ------------ Total United States Operations ............................................ 781,072 512,774 Canada construction and facilities services................................ 62,141 49,463 United Kingdom construction and facilities services........................ 151,414 156,693 Other International construction and facilities services................... 18,295 14,605 Corporate Administration .................................................. 43,567 67,467 ------------- ------------ Total Worldwide Operations ................................................ $1,056,489 $ 801,002 ============= ============
NOTE N - SELECTED UNAUDITED QUARTLY INFORMATION (In thousands, Except Per Share Data)
March 31 June 30 Sept. 30 Dec. 31 ----------- ------------ ----------- ----------- 1999 Quarterly Results Revenues ............................................ $539,983 $696,489 $810,749 $846,741 Gross profit ........................................ $51,955 $66,628 $78,017 $99,307 Net income .......................................... $ 2,051 $ 5,427 $ 8,638 $11,705 Basic EPS ........................................... $ 0.21 $ 0.56 $ 0.89 $ 1.19 =========== ============ =========== =========== Diluted EPS.......................................... $ 0.20 $ 0.45 $ 0.66 $ 0.88 =========== ============ =========== =========== 1998 Quarterly Results Revenues ............................................ $493,923 $ 545,547 $565,964 $604,940 Gross profit ........................................ $ 44,240 $ 52,275 $57,954 $ 68,818 Income before extraordinary item .................... $ 802 $ 3,674 $ 5,760 $ 6,856 Net (loss) income ................................... $ (3,975) $ 3,674 $ 5,760 $ 6,856 Basic EPS before extraordinary item ................. $ 0.08 $ 0.34 $ 0.55 $ 0.69 ============ =========== ========== =========== Basic EPS (loss) .................................... $ (0.41) $ 0.34 $ 0.55 $ 0.69 ============ =========== ========== =========== Diluted EPS.......................................... $ (0.41) $ 0.31 $ 0.45 $ 0.55 ============ =========== ========== ===========
43 EMCOR Group, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE O - LEGAL PROCEEDINGS EMCOR's subsidiary Dynalectric Company ("Dynalectric") had been a party to an arbitration proceeding arising out of Dynalectric's participation in a joint venture with Computran Systems Corp. ("Computran"). The proceeding, which was instituted in 1988 in the Superior Court of New Jersey, Bergen County ("Superior Court") by Computran, a participant in, and a subcontractor to, the joint venture, alleged that Dynalectric wrongfully terminated its subcontract, fraudulently diverted funds due to it, misappropriated its trade secrets and proprietary information, fraudulently induced it to enter into the joint venture and conspired with others to commit certain acts in violation of the New Jersey Racketeering Influence and Corrupt Organization Act. The Superior Court ordered that the matter in dispute between Dynalectric and Computran be resolved by binding arbitration in accordance with an original agreement between the parties. Following a decision by the arbitrator, the parties decided to settle all matters relating to the dispute and exchange general releases, and as a consequence, Dynalectric paid to Computran $1,000,000. In February 1995 as part of an investigation by the New York County District Attorney's office into the business affairs of Herbert Construction Company ("Herbert"), a general contractor that did business with EMCOR's subsidiary, Forest Electric Corp. ("Forest"), a search warrant was executed at Forest's executive offices. At that time, EMCOR was informed that Forest and certain of its officers are targets of the continuing investigation. Neither EMCOR nor Forest has been advised of the precise nature of any suspected violation of law by Forest or its officers. On April 7, 1997, Ted Kohl, a principal of Herbert, pled guilty to one count of money laundering, one count of offering a false instrument for filing and one count of filing a false New York State Resident Income Tax Return. DPL Interiors, Inc., a Company allegedly owned by Mr. Kohl, also pled guilty to one count of failing to file New York City General Income Tax Returns. Mr. Kohl and DPL Interiors, Inc. have not yet been sentenced. On July 31, 1998, a former employee of a subsidiary of EMCOR filed a class-action complaint on behalf of the participants in two employee benefit plans sponsored by EMCOR against EMCOR and other defendants for breach of fiduciary duty under the Employee Retirement Income Security Act. All of the claims relate to alleged acts or omissions which occurred during the period May 1, 1991 to December 1994. The principal allegations of the complaint are that the defendants breached their fiduciary duties by causing the plans to purchase and hold stock of EMCOR when it was then known as JWP, Inc. and when the defendants knew or should have known it was imprudent to do so. The plaintiff has not made claim for a specific dollar amount of damages but generally seeks to recover for the benefit plans the loss in the value of JWP stock held by the plans. EMCOR and the other defendants intend to vigorously defend the case. Insurance coverage may be applicable under an EMCOR pension trust liability insurance policy for EMCOR and those present and former employees of EMCOR who are defendants in the action. Substantial settlements or damage judgements against EMCOR arising out of these matters could have a material adverse effect on EMCOR's business, operating results and financial condition. In addition to the above, EMCOR is involved in other legal proceedings and claims, asserted by and against EMCOR, which have arisen in the ordinary course of business. EMCOR believes it has a number of valid defenses to these actions and EMCOR intends to vigorously defend or assert these claims and does not believe that a significant liability will result. However, EMCOR cannot predict the outcome thereof or the impact that an adverse result of the matters discussed above will have upon EMCOR's financial position or results of operations. 44 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of EMCOR Group, Inc.: We have audited the accompanying consolidated balance sheets of EMCOR Group, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of Valuation and Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Stamford, Connecticut February 18, 2000 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III The Items comprising Part III information will be filed as an amendment to this Form 10-K no later than 120 days after December 31, 1999, the end of EMCOR's fiscal year covered by this Form 10-K. 46 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of EMCOR Group, Inc. and Subsidiaries are included in Part II, Item 8: Financial Statements: Consolidated Balance Sheets - December 31, 1999 and 1998 Consolidated Statements of Operations - Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows - Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity and Comprehensive Income - Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Report of Independent Public Accountants (a)(2) The following financial statement schedules are included in this Form 10-K report: Schedule II - Valuation And Qualifying Accounts All other schedules are omitted because they are not required, are inapplicable, or the information is otherwise shown in the consolidated financial statements or notes thereto. (a)(3) The exhibits listed on the Exhibit Index following the consolidated financial statements hereof are filed herewith in response to this Item. 47 Schedule II EMCOR Group, Inc. VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at Charged To Beginning Costs and Other Deductions Balance at Description of Year Expenses Accounts (1) End of Year - -------------------------------------- ------------- ------------- ------------- ------------- ------------- Allowance for doubtful accounts Year Ended December 31, 1999 $24,006 5,967 5,094 (3,984) $31,083 Year Ended December 31, 1998 $20,456 3,508 475 (433) $24,006 Year Ended December 31, 1997 $18,812 4,300 2,615 (5,271) 20,456
(1) Deductions represent uncollectible balances of accounts receivable written off, net of recoveries. 48 EMCOR GROUP, INC. EXHIBIT INDEX
Exhibit Incorporated By Reference To, or No. Description Page Number ------------ ----------------------------------------------------- ---------------------------------------------- 2(a) -- Disclosure Statement and Third Amended Exhibit 2(a) to EMCOR's Registration Joint Plan of Reorganization (the "Plan of Statement on Form 10 as originally filed Reorganization") proposed by EMCOR March 17, 1995 (the "Form 10") Group, Inc. (formerly JWP INC.) (the "Company" or "EMCOR") and its subsidiary SellCo Corporation ("SellCo"), as approved for dissemination by the United States Bankruptcy Court, Southern District of New York (the "Bankruptcy Court"), on August 22, 1994. 2(b) -- Modification to the Plan of Reorganization Exhibit 2(b) to Form 10 dated September 29, 1994 2(c) -- Second Modification to the Plan of Exhibit 2(c) to Form 10 Reorganization dated September 30, 1994 2(d) -- Confirmation Order of the Bankruptcy Court Exhibit 2(d) to Form 10 dated September 30, 1994 (the "Confirmation Order") confirming the Plan of Reorganization, as amended 2(e) -- Amendment to the Confirmation Order Exhibit 2(e) to Form 10 dated December 8, 1994 2(f) -- Post-confirmation modification to the Plan Exhibit 2(f) to Form 10 of Reorganization entered on December 13, 1994 3(a-1) -- Restated Certificate of Incorporation of Exhibit 3(a-5) to Form 10 EMCOR filed December 15, 1994 3(a-2) -- Amendment dated November 28, 1995 to Exhibit 3(a-2) to EMCOR's Annual Report on the Restated Certificate of Incorporation of Form 10-K for the year ended December 31, EMCOR 1995 (the"1995 Form 10-K") 3(a-3) -- Amendment dated February 12, 1998 to the Exhibit 3(a-3) to EMCOR's Annual Report on Restated Certificate of Incorporation Form 10-K for the year ended December 31, 1997 (the"1997 Form 10-K") 3(b) -- Amended and Restated By-Laws Exhibit 3(b) to EMCOR's Annual Report on Form 10-K for the year ended December 31, 1998 (the"1998 Form 10-K) 3(c) -- Rights Agreement dated March 3, 1997 Exhibit 1 to EMCOR's Report on Form 8-K between EMCOR and the Bank of New York dated March 3, 1997 4.1 -- Amendment and Restatement of Credit Exhibit 4.1 to 1998 Form 10-K Agreement (the "Credit Agreement") dated as of December 22, 1998 among EMCOR, certain of its subsidiaries and Harris Trust and Savings Bank, individually and as agent, and the Lenders which are or become Parties thereto*
49
Exhibit Incorporated By Reference To, or No. Description Page Number ------------ ----------------------------------------------------- ---------------------------------------------- 4.2 -- Subordinated Indenture dated as of March Exhibit 4(b) to EMCOR's Quarterly Report on 18, 1998 ("Indentured") between EMCOR and Form 10-Q for the quarter ended March 31, State Street Bank and Trust Company, as 1998 ("March 1998 Form 10-Q") Trustee ("State Street Bank") 4.3 -- First Supplemental Indenture dated as of Exhibit 4(c) to March 1998 Form 10-Q March 18, 1998 to Indenture between EMCOR and State Street Bank 4.4 -- Indenture dated as of December 15, 1994, Exhibit 4.4 to Form 10 between SellCo and Fleet National Bank of Connecticut, as trustee, in respect of SellCo's 12% Subordinated Contingent Payment Notes, Due 2004 10(a) -- Amended and Restated Employment Agreement Exhibit 10(a) to EMCOR's Quarterly made as of May 4, 1999 between EMCOR and Frank Report on Form 10-Q for the quarter ended T. MacInnis June 30, 1999 ("June 1999 Form 10-Q") 10(b) -- Amended and Restated Employment Agreement Exhibit 10(b) to June 1999 Form 10-Q made as of May 4, 1999 between EMCOR and Sheldon I. Cammaker 10(c) -- Amended and Restated Employment Agreement Exhibit 10(b) to June 1999 Form 10-Q made as of May 4, 1999 between EMCOR and Leicle E. Chesser 10(d) -- Amended and Restated Employment Agreement Exhibit 10(e) to June 1999 Form 10-Q made as of May 4, 1999 between EMCOR and Jeffrey M. Levy 10(e) -- Amended and Restated Employment Agreement Exhibit 10(f) to June 1999 Form 10-Q made as of May 4, 1999 between EMCOR and R. Kevin Matz 10(f) -- Amended and Restated Employment Agreement Exhibit 10(g) to June 1999 Form 10-Q made as of May 4, 1999 between EMCOR and Mark A. Pompa 10(g) -- 1994 Management Stock Option Plan Exhibit 10(o) to Form 10 10(h) -- 1995 Non-Employee Directors' Non-Qualified Exhibit 10(p) to Form 10 Stock Option Plan 10(i) -- 1997 Non-Employee Directors' Non-Qualified Exhibit 10(k) to 1999 Form 10-K Stock Option Plan 10(j) -- 1997 Stock Plan for Directors Exhibit 10(l) to 1999 Form 10-K -- 10(k-1) -- Continuity Agreement dated as of June 22, Exhibit 10(a) to EMCOR's Quarterly Report on 1998 between Frank T. MacInnis and EMCOR Form 10-Q for the quarter ended June 30, (MacInnis Continuity Agreement 1) 1998 ("June 1998 Form 10-Q") 10(k-2) -- Amendment dated as of May 4, 1999 to Exhibit 10(h) to June 1999 Form 10-Q MacInnis Continuity Agreement
50
Exhibit Incorporated By Reference To, or No. Description Page Number ------------ ----------------------------------------------------- ---------------------------------------------- 10(l-1) -- Continuity Agreement dated as of June 22, Exhibit 10(c) to the June 1998 Form 10-Q 1998 between Sheldon I. Cammaker and EMCOR ("Cammaker Continuity Agreement") 10(l-2) -- Amendment dated as of May 4, 1999 to Exhibit 10(i) to June 1999 Form 10-Q Cammaker Continuity Agreement 10(m-1) -- Continuity Agreement dated as of June 22, Exhibit 10(d) to the June 1998 Form 10-Q 1998 between Leicle E. Chesser and EMCOR ("Chesser Continuity Agreement") 10(m-2) -- Amendment dated as of May 4, 1999 to Exhibit 10(j) to June 1999 Form 10-Q Chesser Continuity Agreement 10(n-1) -- Continuity Agreement dated as of June 22, Exhibit 10(b) to the June 1998 Form 10-Q 1998 between Jeffrey M. Levy and EMCOR ("Levy Continuity Agreement") 10(n-2) -- Amendment dated as of May 4, 1999 to Levy Exhibit 10(l) to June 1999 Form 10-Q Continuity Agreement 10(o-1) -- Continuity Agreement dated as of June 22, Exhibit 10(f) to the June 1998 Form 10-Q 1998 between R. Kevin Matz and EMCOR ("Matz Continuity Agreement") 10(o-2) -- Amendment dated as of May 4, 1999 to Matz Exhibit 10(m) to June 1999 Form 10-Q Continuity Agreement 10(p-1) -- Continuity Agreement dated as of June 22, Exhibit 10(g) to the June 1998 Form 10-Q 1998 between Mark A. Pompa and EMCOR ("Pompa Continuity Agreement") 10(p-2) -- Amendment dated as of May 4, 1999 to Pompa Exhibit 10(n) to June 1999 Form 10-Q Continuity Agreement 10(q) -- Release and Settlement Agreement dated Page December 22, 1999 between EMCOR and Thomas D. Cunningham* 11 -- Computation of Basic EPS and Diluted EPS Page for the years ended December 1999 and 1998* 21 -- List of Significant Subsidiaries* Page 23 -- Consent of Arthur Andersen LLP* Page 27 -- Financial Data Schedule* Page *Filed Herewith
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, upon request of the Securities and Exchange Commission, the Registrant hereby undertakes to furnish a copy of any unfiled instrument which defines the rights of holders of long-term debt of the Registrant's subsidiaries. 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMCOR GROUP, INC. (Registrant) Date: February 23, 2000 by /s/ FRANK T. MACINNIS ------------------------------------ Frank T. MacInnis Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on February 23, 2000. /S/ FRANK T. MACINNIS Chairman of the Board of Directors and - ------------------------------------- Chief Executive Officer Frank T. MacInnis /S/ STEPHEN W. BERSHAD Director - ------------------------------------- Stephen W. Bershad /S/ DAVID A. B. BROWN Director - ------------------------------------- David A. B. Brown /S/ GEORGES L. DE BUFFEVENT Director - ------------------------------------- Georges L. de Buffevent /S/ ALBERT FRIED, JR. Director - ------------------------------------- Albert Fried, Jr. /S/ RICHARD F. HAMM, JR. Director - ------------------------------------- Richard F. Hamm, Jr. /S/ KEVIN C. TONER Director - ------------------------------------- Kevin C. Toner /S/ LEICLE E. CHESSER Executive Vice President and - ------------------------------------- Chief Financial Officer Leicle E. Chesser /S/ MARK A. POMPA Vice President and Controller - ------------------------------------- Mark A. Pompa 52 EX-10.Q 2 RELEASE AND SETTLEMENT AGREEMENT [EMCOR LOGO] RELEASE AND LETTER AGREEMENT December 22, 1999 Mr. Thomas D. Cunningham EMCOR Group, inc. 101 Merritt Seven Norwalk, CT 06851 Dear Tod: Reference is made to the Amended and Restated Employment Agreement (the "Agreement") dated as of May 4, 1999, between you and EMCOR Group, Inc. (the "Company"). This is to confirm that your employment with the Company will terminate as of the close of business January 31, 2000 (the "Termination Date") and as of such date the Agreement and your rights and obligations thereunder shall terminate. This Release and Letter Agreement (the "Release and Letter Agreement") sets forth our agreement regarding the separation of your employment with the Company and your release of any and all claims you have against the Company and its affiliates, including those arising out of that employment and any claims you might have under the Age Discrimination in Employment Act ("ADEA"): 1. Normal Separation Allowance: It has been agreed that your employment with the Company shall be terminated as of the Termination Date without "Cause", as that term is defined in the Agreement. If you decide not to enter into this Release and Letter Agreement, you shall be entitled to receive a severance allowance in accordance with Section 6.1 of the Agreement ("Normal Allowance"). 2. Enhanced Severance Allowance. In return for you entering into this Release and Letter Agreement, you will be provided with an enhanced severance allowance ("Enhanced Allowance") in lieu of the Normal Allowance. That portion of the Enhanced Allowance set forth in subparagraphs (a) through (d) below shall be paid to you in a lump sum payment net of applicable taxes on the later of (a) the eighth day following the execution of this Release and Letter Agreement and its return to Sheldon I. Cammaker, EMCOR Group, Inc., 101 Merritt Seven, Norwalk, CT 06851 or (b) January 31, 2000. The Enhanced Allowance shall consist of the following: (a) $650,000 representing a lump sum payment of the equivalent of twice your current annual salary; (b) $300,000 representing a lump sum payment of twice your 1998 bonus; (c) $12,500 representing a lump sum payment of one-twelfth of your estimated bonus in respect of year 2000; (d) $13,500 representing payment in respect of 10 days of vacation time to which you are entitled by reason of your employment during 1999 and which vacation days you will not have taken through the Termination Date; (e) for the period from the Termination Date through December 31, 2000, you shall be covered, at the Company's expense, under the Company's group life, short and long term disability, accidental death and dismemberment and travel accident insurance policies; (f) as provided in the Agreement the Company shall recommend to the Compensation Committee of the Board of Directors that you receive as of the first business day of year 2000 an option to purchase not less than 5,000 shares of common stock, which upon the Termination Date shall be exercisable in full and remain exercisable for a period of ten years from the date of grant; (g) for the period from the Termination Date through December 31, 2000, the Company shall pay you (i) your monthly dues for your golf club and (ii) $800 per month for leasing (plus maintenance and insurance) of your leased automobile; the Company shall also bear the cost of any increased tax liability to you caused by the provisions of this subparagraph (g); (h) pursuant to action of the Compensation and Personnel Committee of the Board of Directors of the Company, which administers the stock option plan under which your November 1997 options have been granted, it has been agreed that the terms of such options are hereby amended so that they shall vest in full upon the Termination Date and may be exercised at any time or from time to time in whole or in part prior to ten years from the date of their grant; (i) the transition arrangements referred to in paragraph 13 hereof; and (j) up to $1,500 to reimburse you for legal expense incurred by you in connection with the negotiation of this Release and Letter Agreement. 3. Retirement Plans: You are a participant in the Company's Retirement and Savings Plan (the "Pension Plan"), and you shall be entitled to all your rights under the Pension Plan in accordance with the terms thereof, including full vesting in the 401(k) part thereof; however in accordance 2 with the Pension Plan you shall forfeit your interest in the defined contribution profit sharing part thereof. 4. No Other Payment: Except as herein specifically provided, no amounts are to be paid to you in respect of any other insurance, benefits, pension or retirement plan or programs. 5. Only One Separation Allowance: You acknowledge and agree that the Enhanced Allowance is provided to you, and is accepted by you, in place of the Normal Allowance. 6. Acceptance of Enhanced Allowance: You have decided to accept the Company's offer of the Enhanced Allowance described above. You acknowledge that you are agreeing to the terms set forth in this Release and Letter Agreement in return for the Company's promise to provide you with money and benefits to which you would otherwise not be entitled. 7. General Release: On behalf of yourself, your heirs, executors, administrators, and assigns, you hereby release and discharge each of the Company, its subsidiaries, affiliates, predecessors, successors, assigns, and all of the officers, directors and employees of the Company and of all the other foregoing entities (collectively the "Released Parties") from all causes of action, charges and claims for money damages, or any other type of relief of any nature whatsoever, whether known or unknown, whether statutory or common law, whether federal, state or local, which you have asserted or could have asserted, now have, or ever had, against the Released Parties, including but not limited to those arising out of or in any way connected with (a) your employment with the Company, (b) your separation from employment with the Company, (c) the Agreement, or (d) any discrimination claim based upon age, sex, race, religion, color, national origin, disability, marital status, appearance, or sexual orientation under federal, state or local law, rule or regulation and/or claim for wrongful termination and any other claim, whether in tort, contract, or otherwise against the Released Parties; provided, however, nothing herein contained shall constitute a release of your rights or the Company's obligations under this Release and Letter Agreement and under the Indemnification Agreement effective March 20, 1995 (the "Indemnification Agreement") between you and the Company, your vested rights in and to the Pension Plan, and any rights for indemnification ("Other Indemnification Rights") you may have as an officer of the Company pursuant to applicable law and its certificate of incorporation and by-laws (all of the rights referred to in this proviso being referred to herein collectively as "Preserved Rights"). 8. ADEA Release. The Enhanced Allowance being given to you is also accepted by you in full and final release and settlement of any and all claims that you may have under the ADEA connected with your employment with the Company (or the termination thereof) arising on or before the date of your acceptance of this Release and Letter Agreement that is indicated below. 3 9. Waiver of Claims and Covenant Not to Sue. You expressly waive all claims or rights to any type or amount of relief not set forth in this Release and Letter Agreement (including, but not limited to, any claims you may have for attorneys' fees and any claims you may have for reinstatement with the Company or any of its affiliates or successors) and covenant not to sue and to hold forever harmless each of the Released Parties as to any and all actions which they took, may have taken, or failed to take in the course of your employment with the Company and your termination therefrom, except for your right to enforce your Preserved Rights. 10. Future Employment. Without the prior written consent of the Company, you will not, now or at any time in the future seek employment with the Released Parties or any one of them. 11. Indemnification of Legal Costs: If you violate this Release and Letter Agreement by initiating any administrative or judicial proceeding involving the Released Parties or suing any of the Released Parties (other than solely to enforce your rights under this Release and Letter Agreement and under the Indemnification Agreement, to enforce your vested rights in and to the Pension Plan, or to enforce Other Indemnification Rights), you agree that you will pay all costs and expenses of defending against the suit or administrative proceeding incurred by the Released Parties, including, but not limited to, their attorneys' fees. 12. Non-Admission of Liability: Nothing contained herein shall be construed as an admission by the Company or you of fault or liability with respect to the other or as an admission by any party of any allegation that might be made by the other. 13. Outplacement: In addition, to the extent you elect to use an outplacement service firm, the Company shall pay to such firm up to $35,000 for services it provides to you during the period commencing with the Termination Date. During the period commencing with the Termination Date and ending upon the sooner of June 30, 2000 or the date you commence full time employment with another entity, the Company shall continue to make available to you its telephone, e-mail, and voice mail systems, hold mail for you, and continue to answer your telephone in the same manner as is presently the case. 14. Non-Disparagement. Neither party to this Release and Letter Agreement shall make disparagements about or in any other way attempt to disparage or impair the reputation or good name of the other party or the Company's divisions, affiliates, subsidiaries, or any of their respective officers, directors or employees. 15. Confidential Information. You hereby covenant and agree that during the course of your employment with the Company, you came into contact with, and had access to, information that is the property of the Company. Such information includes, but is not limited to, specific strategic undertakings, decisions and plans for future business and other development, all of which information you acknowledge and agree is 4 highly confidential and not generally known or available to the public. You agree that you have not and will not utilize or disclose any of the above-described confidential information to any person or entity for any reason or purpose whatsoever. 16. Nondisclosure Obligation. You acknowledge and agree that the terms of this Release and Letter Agreement are to be kept confidential by you and that you will not discuss with any person, including any past, present or future employee of the Company, the terms or conditions of this Release and Letter Agreement except as may be required by law, rule or regulation adopted pursuant to law, court or administrative order or decree in or in connection with testimony given or documents subpoenaed in a judicial or administrative proceeding. Should you be called to testify and divulge the terms of this Release and Letter Agreement, you agree to join the Company, in seeking a confidentiality order in the form sought by the Company. 17. Possible Excise Tax. Anything in this Release and Letter Agreement to the contrary notwithstanding, if it is determined (as hereafter provided) that any payment or distribution by the Company to you or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Release and Letter Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor provision thereto), by reason of being "contingent on a change in ownership or control" of the Company, within the meaning of Section 28OG of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such excise tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively referred to as the "Excise Tax"), then you shall be entitled to receive an additional payment or payments (a "Gross-Up Payment") in an amount such that, after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. In addition, the provisions of Section 6(d) and 6(e) of the Agreement are incorporated herein by reference and shall have the same effect as if set forth herein in their entirety except that the term "you" shall be substituted for the term "the Executive" and the references in the Agreement to Sections 6(d), 6(d)(ii), 6(d)(iii), 6d(iv), 6(d)(v), 6(d)(vi), and 6(d)(vii) shall be deemed to refer to this paragraph 17. 18. Consultation with an Attorney: You acknowledge that you have been advised previously to consult with your own attorney prior to entering into this Release and Letter Agreement and that you were afforded sufficient time to undertake such consultation. 5 19. Period of Consideration. By your signature below, you acknowledge that the Company complied with the ADEA by giving you a period of at least twenty-one (21) days from the date that this Release and Letter Agreement was first provided to you to consider the provisions hereof and to decide whether to accept them. You further acknowledge that no representative of the Company ever stated or implied that you had less than twenty-one (21) days to consider this Release and Letter Agreement. You also acknowledge that, to the extent you decided to sign this Release and Letter Agreement prior to the expiration of the full twenty-one (21) day period, such decision was knowing and voluntary on your part and was in no way coerced by the Company. To the extent any changes were made in this Release and Letter Agreement as a result of a negotiations taking place after the date it was provided to you, you and the Company agree that such changes, whether material or not, did not restart the running of the period of twenty-one (21) days to consider this Release and Letter Agreement required by the ADEA. 20. Entire Agreement: This instrument sets forth the entire agreement between you and the Company relating to your separation from the Company's employ. By your signature below, you acknowledge that in entering into this Release and Letter Agreement you have not relied upon any representation, oral or written, not set forth herein. 21. Right to Revoke Agreement: This Release and Letter Agreement will not become effective or enforceable for a period of seven (7) days from the date of your acceptance of this Release and Letter Agreement indicated below. During this seven-day period, you have a right to change your decision to accept the Enhanced Allowance that has been offered to you and to revoke this Release and Letter Agreement. If the above correctly sets forth our agreement, please sign, date, and return the original. Very truly yours, EMCOR GROUP INC. By: /s/ Frank T. MacInnis ------------------------------ Frank T. MacInnis Chairman of the Board I have read the above Release and Letter Agreement, and I understand, accept, and agree to the terms and acknowledgments it contains 1/19/00 /s/ Thomas D. Cunningham - -------------------------------- -------------------------------- Date Thomas D. Cunningham 6 EX-11 3 COMPUTATION OF BASIC AND DILUTED EPS EXHIBIT 11 SEE NOTE C TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS FOR INFORMATION RELATING TO THE CALCULATION OF BASIC EPS AND DILUTED EPS. EX-21 4 LIST OF SIGNIFICANT SUBSIDIARIES EXHIBIT 21 LIST OF SIGNIFICANT SUBSIDIARIES Dyn Specialty Contracting, Inc. MES Holding Corporation SellCo Corporation EMCOR Construction Holdings Services Inc. EMCOR International, Inc. EMCOR Mechanical/Electrical Services (East), Inc. EMCOR Mechanical/Electrical Services (Midwest), Inc. EMCOR Mechanical/Electrical Services (West), Inc. EMCOR Mechanical/Electrical Services (South), Inc. EMCOR (UK) Limited Drake & Scull Group Ltd. EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement Filed Nos. 333-44369, 333-02819 and 333-75449. Stamford, Connecticut February 18, 2000 EX-27 6 FINANCIAL DATA SCHEDULE
5 This Schedule Contains Summary Financial Information Extracted From EMCOR Group, Inc. Consolidated Financial Statements for the year ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 1000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 58,552 0 744,676 31,083 9,776 927,987 67,047 30,538 1,056,489 717,582 118,238 0 0 117 170,132 1,056,489 2,893,962 2,893,962 2,598,055 2,835,871 0 5,967 10,520 49,678 21,857 27,821 0 0 0 27,821 2.86 2.21
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